It Makes Business Loan Applications Faster
Many independent contractors realized how useful an EIN could be when the Paycheck Protection Program rolled out during the Covid-19 pandemic. As mentioned above, many banks require an EIN to open a business checking account. Without a business bank account, many independent contractors struggled to prove they were business owners because their personal finances were not separate from their business finances.
This is true for other business loans, too. Additionally, many banks use business credit to assess loan applications, and you need an EIN to build business credit.
What Is An Llc
LLC stands for limited liability company.
These are legal entities formed at the state level. When you start an LLC, youll have to decide where you want to register it. For most of you, that answer is simpleyour home state will almost always be the best option.
LLCs are popular because they combine some of the positive aspects of corporations and partnerships while eliminating some drawbacks of each. Like a corporation, LLC owners and shareholders benefit from limited liability protection . LLCs also provide pass-through taxation, like a partnership.
Generally, businesses need a new EIN when their ownership or structure has changed. Although changing the name of your business does not require you to obtain a new EIN, you may wish to visit the Business Name Change page to find out what actions are required if you change the name of your business. The information below provides answers to frequently asked questions about changing your EIN. If, after reading the information below, you find that you need an EIN, please see How to Apply for an EIN.
Sole Proprietorship Vs Llc: Whats The Difference
It can be hard to know if changing from a sole proprietorship to an LLC is right. Take a look at these key points on each business structure to help you decide.
Sole proprietorships are
- Easy and affordable to form
- Considered the same legal entity as the owner
With a sole proprietorship, you are personally responsible for all business losses, debts, and liabilities.
Limited liability companies are
- Owned by one person or more
- Moderately easy and affordable to form
- Considered different legal entities than the owners
LLCs combine aspects of corporations and partnerships. An LLC separates business and personal liabilities, so your assets are protected and owners not liable for business debts. There is also a shared tax responsibility between members, like a partnership.
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How To Apply For An Ein
The IRS provides a free service to apply for an EIN. The service allows you to submit an IRS Form SS-4 by mail, phone, fax, or online. You can obtain a copy of the IRS form and information on filing at the IRS website at www.irs.gov.
Online. This is the easiest and quickest way to get an EIN. You can apply at www.irs.gov/businesses/small/article/0,,id=102767,00.html.
Phone. You can receive an EIN almost immediately by calling the Business & Specialty Tax line at 829-4933. International applicants should call 941-1099.
Fax. You may also fax your SS-4 form to 669-5760. International applicants should fax their form to 941-1040.
Mail. This is the slowest way to receive your EIN. The process by mail usually takes four weeks.
If your principal business, office or agency, or legal residence is located in the District of Columbia or any of the fifty states, you must mail a SS-4 Form to:
Internal Revenue ServiceAttn: Internal Revenue Service Cincinnati, OH 45999
If you have no legal residence, principal place of business, or principal office or agency in the District of Columbia or any state, you must mail a SS-4 Form to:
Internal Revenue Service
When Is A New Ein Required
When you have an EIN for your sole proprietorship but you decide to turn that company into an LLC.
With a change in the type of company youre operating, you wont be able to simply pass along your current number. Instead, youll have to get a new EIN.
You would want to consider a new EIN if youre planning to change the ownership or the structure of the business entity. However, you will not need a new EIN if you are simply changing the name of your business or relocating.
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It Allows You To Open A Business Bank Account
Business bank accounts are useful for several reasons. First off, theyre an easy way to keep your personal finances separate from your business finances. Keeping your personal and business transactions separate makes it much easier to complete your taxes at the end of the year. Additionally, it makes all of your finances much clearer in the case youre audited by the IRS. To be clear, business bank accounts are not required for sole proprietors. Nonetheless, most sole proprietors would agree that business and personal finances should be kept separate.
For sole proprietors, an EIN is not always required to open a business bank account. However, this depends on each banks policy. Bank of America, for example, requires an EIN to open a business account. If youre interested in opening a business checking or savings account, its best to contact your prospective bank to find out if an EIN is required.
How To Obtain An Ein
Obtaining an EIN is easy and free. The fastest and easiest way is to apply directly at the IRS website. The IRS has an online EIN Assistant tool you can use. If you are not comfortable sending information via the Internet, you can download IRS Form SS-4, Application for Employer Identification Number and send it by postal mail. Alternatively, you can receive your EIN by calling the IRS at 800-829-4933 from 7:00 a.m. to 10:00 p.m. local time .
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It Makes It Easier To Establish Business Credit
One of the benefits of having an EIN is that it can help you establish business credit. Business credit is separate from personal credit, and itâs important to have it if you want to get a loan or lease in the future. By using your EIN on loan and credit applications, youâll start building a credit history for your business on your business credit card.
When Is An Ein Required
EINs are required for most business entities, but not all. Businesses that fulfill any of the following criteria must have an EIN:
- Run as a corporation or partnership
- Hires employees
- Has a Keogh retirement plan
- Administers estates or trusts
- Files taxes with the IRS for employment, tobacco, firearms, or alcohol
- Withholds taxes for payments made to non-resident aliens
- Has involvements with non-profits, plan administrators, or farmers’ cooperatives
Businesses that do not require an EIN include those that are not required to file taxes separately from their personal income taxes by the IRS. These business entities also must not satisfy any of the conditions we’ve mentioned above.
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What Are The Benefits Of Having A Ein Number
Even if you’re not required to get an EIN, the benefits of getting an EIN include the following:
- File business taxes and avoid tax penalties. …
- Prevent identity theft. …
- Add credibility as a freelancer or independent contractor. …
- Speed up business loan applications. …
- Open a business bank account. …
- Build trust with vendors.
How Do I Look Up My Ein
The most straightforward method for finding a lost or misplaced EIN is calling the IRS Business & Specialty Tax Line via 800-829-4933 and asking them to search for your business EIN. Besides that, there are other options that you can take as well:
- Check your mails and emails to see if there are any letters and notifications from the IRS. Theyâll usually contain your business EIN.
- In case you used the EIN to open your business account, try contacting the bank for the EIN.
- If you used the EIN to obtain local and state licenses, you can also contact them for the same.
- In case you have registered your business with a credit agency, consider getting a credit report. It will have the EIN indicated in it.
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Ein: What Is It And Why Do I Need One
If you are starting a business, administering an estate, or are the trustee of an irrevocable trust, chances are that you will need to obtain a federal Tax Identification Number for your company. Whether or not you are a business owner with employees, the identification number is referred to as an Employer Identification Number, or EIN for short.
How Do I Obtain A Tax Id Number For My Sole Proprietorship
You can apply for a Tax ID Number online, through mail, or through fax. By using a Tax ID Service, you can have your application prepared for you and send in you can usually receive an EIN Number within an hour, as long as all of the information on the application is correct.
A Tax ID Service will collect your personal and business information and submit it for you, making sure that the process is smooth and fast. If you need an EIN Number quickly, you can get one online fast.
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Should I Form My Llc Before Getting My Ein
We recommend you form your LLC before you get your EIN. One of the main reasons is that when you apply for your EIN, the IRS application asks you to submit the approved legal name of your business and the date it was formed. So, it is helpful to have your LLC formed and registered before you try to get your EIN.
Should I Get An Ein For My Llc
Whether you get an EIN for your LLC is really an individual choice. However, there are benefits to having this identification number even if its not legally required. The use of an EIN clearly classifies your LLC as a separate entity from you as the owner.
For example, most banks require an LLC to have an EIN before a business can open a banking account. Unless you want to run everything through your personal checking account, getting an EIN may be a better choice.
You may also find that its easier to work with vendors, contractors, and other business services when you have an EIN. Youre taken more seriously and your company is seen as a strong business endeavor, not just a hobby.
Does a Single-Member LLC Need an EIN?
Technically, no, a single-member LLC doesnt need an EIN. A single-member LLC can operate under the social security number of the owner.
But a lot of single-member LLCs still choose to have an EIN because it makes it easier to separate personal and business finances. You may also find that you need the EIN to open a business bank account for your LLC.
Does a Multi-Member LLC Need an EIN?
Yes. Every multi-member LLC is required to have an EIN to operate. If you dont have one you will be in violation of IRS rules and may not be able to file taxes or handle other tax-related issues.
Do Sole Proprietors Need An Employer Identification Number
Starting a small business as a sole proprietor is often the simplest and least expensive way to begin a business venture. The title of a sole proprietor is automatically applied to business owners who are the only employee of an unincorporated business.
Starting a business brings lots of registrations and questions like whether an Employer Identification Number or EIN is required.
Answering this question can get complicated. As such, lets take a few moments to discuss what an EIN is, when a business entity might need one, and how to obtain one.
Apply For Tax Id Number For A Sole Proprietorship
Do you need a Tax ID Number for a sole proprietorship? Very few sole proprietorships will never need a tax ID number, but this is rare. And if you do end up needing a federal EIN Number, you will often need it quite quickly. Heres how you can determine whether you need one, as well as how to get your EIN online.
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It Helps Minimize The Risk Of Identity Theft
Your Social Security number is one of the most important pieces of information about you. Giving it out to every business you work with leaves you vulnerable to identity theft. Identity thieves can get hold of your personal social security number and use it to file fraudulent tax returns. With an EIN, you can keep your SSN for personal use and still have a unique identifier for your business.
How To Use Your Ein As A Freelancer
Again, as a freelancer, your will probably only ever need your EIN when a client asks you to fill out a W9 so they can send you a 1099 later.
On the W9, where it asks for a Tax Identification Number, put your EINdo not put your SSN.
On your tax return, Form 1040 with a Schedule C, you will use your SSN not your EIN.And dont worry, the IRS will still be able to match your 1099s to your SSN because when you applied for your EIN, you had to tell the IRS your SSN so that they could match it. So no worries!
Learn more about how to fill out a W9 as a freelancer
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What Are The Advantages Of Having An Ein
Even if you are not required to use an EIN, you may want to get one anyway. One reason to do so is that using an EIN instead of your Social Security number will help you keep your personal Social Security number more private. Subsequently, the EIN can help prevent identity theft. If you already have an EIN, youll need to obtain a new one if the ownership or structure of your business change. For example, you take on partners, incorporate your business. You don need to obtain a new EIN if you change your business name or location.
Protection Against Identity Theft
Without a business EIN, youâll be forced to use your Social Security Number on various business applications and documents. By frequently putting your SSN out there, you increase the risk of it landing in the hands of an identity thief.
If that happens, the thief can use your details to obtain credit and even file fraudulent tax returns in your name. You can easily avoid that by getting a business EIN and using it on all business documentation. The added advantage is that you get to keep your SSN private.
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Benefits Of An Ein Even If Its Not Required
Getting an EIN takes anywhere from five minutes with the online EIN application to up to five weeks for the mail-in appliation, depending on your method of submission. A few benefits to consider to having an EIN include:
- Reducing the potential for identity theft since you arent using your SSN for the business
- Using an EIN can help build business credit in some cases
- May be needed when applying for business licenses and permits
It Helps You Track Business Expenses
If youâre keeping track of your business expenses, you can use your EIN to segregate them from your personal expenses. That makes tax time a lot simpler and can save you money come tax time.
Also, by keeping track of your business expenses, you’ll be able to take advantage of tax deductions, saving even more money.
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Why You May Want An Ein Even If It Is Not Required
Even though most sole proprietors will not need to obtain an EIN, it can be beneficial to obtain one in some cases.
First, sole proprietors who act as independent contractors can help protect their identities by obtaining and using an EIN with their clients, rather than providing their own Social Security Numbers.
Having an EIN may also make an independent contractor or sole proprietor appear more professional to potential clients. Some sole proprietors find this helps them land and solidify client relationships more easily.
Do I Need A Ein For Shopify
What is the best way to legally run a Shopify store? You can register a business and file for an EIN, but you don’t need to if your business is small or medium. You can run your Shopify store as a sole proprietor and use your SSN or SIN for tax purposes. However, you may need to file for an EIN if you have employees.
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Is Sole Proprietorship Still The Best Option For My Business
If your sole proprietorship is large enough or successful enough to hire employees, then you could be in the position to consider converting your sole proprietorship into an LLC. Forming an LLC is the next step in growing a business.
While being a sole proprietor can be an easy option to run a business with very low profit and low risk, you have zero liability protection.
There are many benefits to holding your business in an LLC, but the most impactful is liability protection. An LLC separates the business owner’s personal assets from the business. This means your personal assets aren’t in jeopardy in the event that the business is sued or can’t pay a debt.
Learn more about getting an EIN as a foreign person.