What Is an EIN and Does Your Business Need One?

An Employer Identification Number ( EIN ) is compulsory for some businesses and optional for others. But in general, an EIN is necessary for independent contractors and small business owners. Understanding who needs to apply and the benefits that come with having an EIN can give your business a veridical advantage .

What Is an EIN?

An EIN is an exclusive nine-digit number assigned to your business by the Internal Revenue Service and identifies your business for tax purposes. It ‘s like your Social Security Number, except it ‘s designed for businesses only. It ‘s necessary for paying employees and managing your clientele taxes. EINs are issued by the state and used on state tax forms .

Who Is Required to Have an EIN?

The follow business structures are required to have EINs :

Sole proprietorships, in general, are not required to have an EIN. however, an EIN is required if :

  • You have employees or plan to hire them.
  • You want to offer a Keogh or solo 401(K) retirement plan
  • You’re inheriting or thinking of buying a sole proprietorship
  • You need to file for bankruptcy

The IRS besides requires EINs for trusts created by estate funds and representatives who oversee an estate that operates a business after the owner ‘s death .
independent contractors, freelancers, people running small businesses out of their homes, and people with side jobs who capitalize on the spear economy are generally not required to get an EIN. still, there are enough of reasons why they should.

Why Can’t I Just Use My Social Security Number?

When the IRS mandates an EIN, you do n’t have a choice. But here ‘s a key reason why it ‘s a dependable idea to use an EIN for business even when it ‘s not required : avoiding identity larceny .

  • An EIN helps keep your personal and business finances separate. It reserves your Social Security Number for personal needs and keeps identity thieves from ripping off your personal assets. The IRS recommends using your Social Security Number only if you have a very simple business structure and no employees.

What Other Advantages Come With Having an EIN?

In some ways, an EIN is one of the best-kept secrets in the commercial enterprise universe. surprisingly, applying for one is n’t on every entrepreneur ‘s disturbance list. An EIN makes it easier to :

  • Apply for a business license. This varies by state, but many states require an EIN before you can be licensed to conduct business.
  • Get a business bank account. More banks require an EIN to open a business bank account, along with the appropriate business license to show that you’re permitted to operate in your area. Depending on your business structure, you may have to show articles of incorporation or a “doing business as” (DBA) certificate.
  • Take out a bank loan. Most banks require you to have a business account before you apply for a loan.
  • Hire employees. Having employees means an EIN is absolutely required, and you can’t set up your payroll system without one.
  • File your taxes. If you are required to have an EIN and don’t have it before you file your taxes, you open yourself up to all kinds of tax penalties.
  • Boost credibility. An EIN establishes you as a serious, responsible person who’s committed to your business.

What’s the Difference Between an EIN and a FEIN?

A FEIN is a Federal Employee Identification Number. It serves the same function as an EIN, except the federal government issues it alternatively of the state. A FEIN besides allows you to enroll in the electronic federal tax payment system, where you can well make tax payments over the earphone or on-line.

How Do I Apply for an EIN?

here ‘s the dear news. Applying for an EIN is easy and release. Establish your business character anterior to requesting an EIN. For case, if you plan to operate your modern business as an LLC, create the LLC anterior to applying for an EIN. You can apply online on the IRS ‘s web site, or you can use an mugwump service to complete the procedure for you. You can apply on-line, by facsimile, or by mail with the IRS. If you apply by facsimile or mail, you will need to complete the Form SS-4, Application for Employer Identification Number. When you apply on-line, you will be able to view and print your assign EIN at the goal of the on-line school term. Via fax, the procedure is by and large complete within four clientele days. Via mail, you can expect a wait clock time of approximately four weeks .
note that :

  • Your principal business must be located in the U.S. or a U.S. territory
  • You must have a Social Security Number, Individual Taxpayer Identification Number (given to those who aren’t eligible to obtain a Social Security Number), or preexisting EIN.
  • You must be considered a “responsible party,” which means you’re the person who ultimately owns or controls the entity applying or exercises ultimate effective control over the entity.

now that you can see the advantages and relief of obtaining an EIN, acquiring an EIN should be one of the first steps you take when creating a new clientele .

reference : https://www.peterswar.net
Category : Finance

Related Posts

How to Calculate Credit Card Interest Rates

interest rates are one of the ways to work out how much it will cost you to use your credit card, along with other charges and fees….

What debt collectors can & cannot do

If you are dealing with a debt collector, you have protections under the law. A debt collector must not mislead, harass, coerce or act unconscionably towards you….

Can You Afford a New Home? How to Determine Your Homebuying Budget

Can You Afford a New Home? How to Determine Your Homebuying Budget As with any major purchase, determining what you can afford before you look for a…

Why Did My Credit Score Drop?

Why Did My Credit Score Go Down When Nothing Changed? sometimes your mark does change based on factors outside of your control, but most times your behavior…

Why Do I Owe Taxes To The IRS & How To Avoid Them

Are you wondering why you owe indeed much in taxes this year ? Want to make certain you never owe a big tax bill – or any…

The 5 reasons why your credit score might suddenly drop

Select ’ s editorial team works independently to review fiscal products and write articles we think our readers will find useful. We earn a perpetration from affiliate…