Some sole proprietors get an EIN to protect the privacy of their personal Social Security Number and identifying information. Other small business owners apply for an EIN because their bank requires it. If you get an EIN when you start your business, you’ll be prepared for the day when you have employees or partners. And an EIN can make a sole proprietorship appear more professional and credible. The IRS requires certain businesses like corporations, partnerships, and limited liability companies (LLCs) to have an employer identification number. But it can be beneficial to get an EIN even if you don’t legally need one.
Complete Form SS-4
You will need it to apply for business licenses, open a business bank account, create official financial reports, hire employees, establish vendor accounts, file taxes, and sign tax-related documents. If you’re a tax preparer or someone who files tax returns electronically, you will also need an EFIN. Most business entities need an EIN, including corporations, partnerships, and even sole proprietorships with employees. The number is used by the IRS to track their tax obligations and filings. It’s important for businesses to apply for an EIN immediately after formation to ensure compliance with federal tax requirements.
Can I apply for an EIN if I am a nonprofit organization?
Your FEIN vs EIN will allow the IRS to charge you the right amount of tax, regardless of your status as an employer. An EIN is an Employer Identification Number and a Social Security Number is an individual’s Tax ID Number. An EIN provides additional privacy protection and other advantages over an SSN for businesses. Acquiring an EIN provides various advantages for businesses, ranging from streamlined tax management to simplified business transactions and increased credibility and professionalism. As you may have noticed, not all of these EIN numbers are relevant to businesses. The Cash Flow Management for Small Businesses major thing US-based businesses with US-citizen owners need to understand is the difference between an EIN & an SSN and who needs which number.
When you need to apply for a new EIN
If the LLC timely files Form 2553, it will be treated as a corporation as of the effective date of the S corporation election as long as it meets all other requirements to qualify as an S corporation. The LLC doesn’t need to file Form 8832 in addition to Form 2553. File Form 8822-B to report any subsequent changes to the entity’s mailing address. Follow the instructions for each line to expedite processing and to avoid unnecessary IRS requests for additional information. If a business wants to set up a retirement plan, such as a 401(k), for its employees, it needs an EIN.
- A taxpayer identification number (TIN) is a number issued by the IRS that identifies a business or individual for tax-related purposes.
- A business must be located in the U.S. or U.S. territories to apply for an EIN online.
- If the state asks for a tax ID number or federal tax ID number, you may need to have a separate EIN over and above your FEIN.
- The Form SS-4 must also be signed by the taxpayer for the third party designee authorization to be valid.
- Having an EIN demonstrates that a business is properly registered and authorized to operate.
- The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone.
Do Sole Proprietors and LLCs Need EINs?
If you have a very small business without employees, you may not be required to obtain a business EIN for tax purposes, but it can still have a number of different benefits for your company. Because it purpose of ein number is essentially a form of business identification, it can make some processes easier and more organized. An EIN is a type of tax identification number, or TIN, and it is used to identify businesses the same way that social security numbers are used to identify individual taxpayers.
Your EIN is meant to be a permanent identifier of your business, so you can’t just change your EIN on a whim. However, if your business ownership or business structure is changing, you may need to obtain a new EIN. For more information, the IRS has a whole page detailing when each business structure may need a new EIN. A Social Security Number (SSN) is used to identify individuals employed in the United States of America.
- You must have a PTIN if you, for compensation, prepare all or substantially all of any federal tax return or claim for refund.
- Check the Other box (and specify the applicant’s principal activity) if none of the listed boxes applies.
- The EIN application process is relatively straightforward, and the method you choose should depend on your convenience and immediate needs.
- It identifies the business entity in all IRS communications.
- The EIN is a taxpayer identification number that the Internal Revenue Service (IRS) issues to businesses.
Tax-exempt status and your EIN
You can apply for an EIN number online through the IRS website. If you’re applying by mail or fax, you’ll need to complete IRS Form SS-4. Please note that there are some exceptions to who is eligible for processing an online application that the IRS website linked above will clarify. You’re not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law.
- If you applied online, an electronic version of your EIN letter will be immediately available once the application is submitted.
- It’s free, and you’ll get your EIN no matter which method you choose.
- The EIN is not considered to be sensitive information the same way a Social Security number is and is freely distributed by businesses online and in print publications.
- At the federal level, an EIN and an FEIN (Federal Employer Identification Number) are essentially the same thing.
- An organization must treat the EIN as sensitive information, similar to a Social Security number.
This includes reporting wages, withholding and paying payroll taxes, and providing tax forms such as W-2s to employees. Next, you’ll retained earnings balance sheet need to specify the reason for applying for an EIN. Common reasons include starting a new business, hiring employees, banking purposes, or compliance with IRS tax requirements. Sierra Campbell is the lead small business editor for USA TODAY Blueprint.