Starting a business is an exciting time in anyone’s life, but it comes with a long list of legalities that you must abide by in order to run your business properly. One of those legalities is an EIN. When you are in the process of starting your business, you have probably heard the term EIN tossed around and don’t know whether or not it pertains to you. It is an essential aspect of many businesses, so knowing if you need to apply for one is important. Here is what you need to know.
What Is an EIN?
An EIN stands for Employer Identification Number. It is a nine-digit number that the IRS assigns to identify employers’ tax accounts. This number will be used for any and all documents that you send to the IRS and used to identify your business to the government. Depending on the structure that you choose for business will change if and when you need to apply for an EIN.
Which Business Structures Require an EIN?
Corporations
Whether you have a C Corporation or an S Corporation, you will need to have an EIN. You will need an EIN even if you do not have any employees.
Partnerships
If you join another person to create a business and form a partnership, you will need to apply for an EIN. This is the case whether you have a general partnership or a limited partnership.
LLC
When it comes to an LLC, multiple factors could require you to apply for an EIN. For example, if you are a multi-member LLC or plan to be in the next 12 months, you will need to obtain an EIN. Additionally, you might willingly apply for an EIN as a single-member LLC if you want to be taxed as a corporation. Otherwise, many LLC owners will simply use their Social Security Number for IRS purposes.
Sole Proprietorships
Similar to an LLC, the choice of applying for an EIN as a sole proprietorship will depend on the number of employees you have. If you are the sole proprietor with no employees, you will not need to have an EIN. However, if you have employees, plan to have employees in the next 12 months, have a Keogh Plan, or are required to file a federal Employment tax return or an alcohol, tobacco, or firearm tax return, you will need to obtain an EIN.
What Does An EIN Do For You?
If you fall under the category of needing an EIN, it is important to apply for an EIN through the IRS immediately. You can do this online or choose to have help from a business attorney who can help ensure you are going through the process properly.
Overall, an EIN can be a great way to protect your personal information and keep your personal finances and accounts separate from those of your business. This can make filing with the IRS easier and keep you from getting personally affected by your business. Additionally, EINs can be helpful if you plan to apply for loans in the future, as many lenders will prefer to see an EIN rather than an SSN. This will also help you build your business’s credit score to lead to better rates. If you have an LLC, an EIN can also help maintain any personal liability protection you may have within your business. In general, having an EIN can be beneficial in multiple areas.
While an EIN is required for many business structures, you can still apply for one if you fall under another category. If you have further questions or wish to apply and need assistance, contact the team at Hartmann Law.