Are you a new business owner wondering what an EIN is, or how to get one? An EIN, or Employer Identification Number, is a unique tax identification number assigned by the Internal Revenue Service (IRS).
Most businesses require an EIN, but there are certain exemptions. In this guide, we’ll walk you through everything you need to know about EINs, including which businesses need one and how to get one. Let’s dive in!
As mentioned, your business may need an EIN to fulfill certain legal requirements. However, even if your business is exempt from any EIN regulations, there may be other reasons why getting an EIN could be beneficial for your LLC. Here’s a list of some of the potential advantages of getting one:
Separation of Business and Personal Identity
Solopreneurs or individuals who run single-member LLCs face significant personal liability risks. A good way to mitigate personal liability is to structure your business as a corporation and acquire an EIN for tax purposes.
As Jonathan Feniak, General Counsel at LLC Attorney, shares, “Separating your business and personal identities is a solid business practice that everyone should adopt. I’ve seen far too many small business owners completely wrecked by failing to set appropriate barriers between their businesses and themselves.”
Protect Your Privacy By Replacing Your SSN with an EIN on Relevant Paperwork
To protect your personal identity, it is smart to minimize exposure to your social security number as much as possible. With an EIN, you can avoid using your SSN on key documents such as tax forms or invoices, creating a further degree of separation between your personal life and your business.
Opening a Business Bank Account
Operating a business bank account can help to add some professionalism to your operations. For one, your clients, vendors, and other stakeholders are more likely to take you seriously when you provide them with a business bank account than when you provide them with a personal bank account to transact with.
As Axel Lavergne, Founder at ReviewFlowz, adds, “You’ll need an EIN to open a business bank account with most banks, so it makes sense to get one even if you aren’t strictly required to by law. Additionally, having a business account will likely be a prerequisite to applying for or getting any bank loans for your business.”
Building Your Business’s Credit Profile
Another important thing to consider is building a credit history for your business, separate from yours. While just having a business bank account is an important first step to securing a business loan, for example, you will also need to ensure that your business has built a solid credit history over time.
While lots of new business owners are wary of taking on debt, well-managed debt can be a great way for entrepreneurs with a great idea to start a business with no money.
Hiring Employees
If you have employees or plan to hire any, you need an EIN to report payroll taxes and withhold income taxes.
Generally, EINs are meant for businesses that already have or plan to hire employees. However, these rules are somewhat complicated. We’ve broken down the requirements below to help you understand how they might apply to you.
LLCs With More Than One Member
If your LLC has another member other than yourself, then you’ll need an EIN. The IRS views multi-member LLCs as partnerships for tax purposes. Even if your LLC does not have any direct employees, this rule will still apply to it.
Mark Pierce, CEO at Wyoming Trust, notes, “Although it is compulsory for multi-member LLCs to obtain EINs, single-member LLCs may opt to do this even when they do not have any employees.
Ordinarily, these businesses are exempt from being compelled to get an EIN; however, you may consider it advantageous to get one, to help separate your business identity from your personal identity.”
LLCs With Employees
LLCs with any number of employees whatsoever must obtain an EIN for tax reporting purposes.
LLCs that Elect to be Taxed as a Corporation
LLCs may elect to be taxed as corporations for tax purposes. This means, in effect, that the owner of the business will be considered an employee of the business, which creates room for flexibility with tax planning. However, opting for this arrangement will mean that your business requires an EIN.
LLCs with a Keogh plan
A Keogh plan is a tax exemption that allows qualified individuals to defer certain tax payments as part of their retirement planning. If you participate in this scheme or plan to, you should know that you will be required to apply for an EIN even if you do not meet the other conditions outlined above.
Applying for an EIN is usually a straightforward process and you can do this free of charge. What you need to do to make sure everything works as planned is to ensure that all your documents are in order and that you follow the proper steps in making your application. These steps are covered below”:
John Baek, Founder of JSB Digital Works, states, “With pretty much any business process, successful outcomes are almost always from effective preparation. This is true whether you’re building a pitch deck or applying for an EIN.”
To get started with your EIN application, you’ll need to have the details of the person or persons with ultimate control of the LLC. Some details to provide include their names, social security numbers, taxpayer identification numbers, and so on.
In addition to the details of individuals with significant control of the business, you will also need to put together and submit the details of the business itself. This includes details such as its physical address, business activities, number of employees—if any—and so on.
Once you have all the information mentioned above, you’ll be set for your EIN application. According to GovDocFiling, you can make the application using any of these four primary methods: online, mail, fax, and over the phone.
Online EIN applications are the method of choice for most people. This is because it is usually the quickest and easiest option, and it allows you to receive your EIN once your application is complete.
Mail applications are also possible, and you can do this by downloading, printing, and mailing Form SS-4 to the IRS. This method is less preferable as processing times tend to be significantly longer.
Fax Application: Similar to the mail application, you can fill out Form SS-4 and fax it to the IRS for an EIN typically within four business days.
Phone Application for International Applicants: If you're located outside the US and its territories, you can call the IRS to apply for an EIN over the phone.
Making an online application for an EIN is a straightforward process but you may need to set aside a bit of time for it. As you work through these steps, remember to ensure that the data you provide is accurate and consistent.
Log on to the EIN online application page on the IRS website. Scroll down to the "Begin Application" button, then click on it to get started.
You’ll need to let the IRS know your business’s legal structure. Generally, this will either be an LLC or a corporation. In this case, you’re likely the owner of an LLC, so choose this option to proceed.
LLCs can have a single member or multiple members. You’ll need to specify the exact number of members yours has to move on to the next stage.
Certain business and tax laws vary from state to state. Choose the state or territory where your LLC is registered.
As mentioned, EINs offer numerous benefits for LLCs and other types of businesses. Whatever your reason for applying for one, provide this on the application.
Next, you'll need to identify the responsible party for your LLC. This is typically the principal point of contact and could be the owner, another member, a managing member, or even a third party.
You’ll need to provide their full legal name and either their Social Security Number (SSN) or Taxpayer Identification Number (TIN). You’ll also need to state what precise role this individual holds within the business.
Finally, you’ll need to provide a few more details about the business. These include details such as its name, nature of business, state of registration, and so on.
You’ll be asked a series of questions to cover these areas, and as mentioned before, remember to provide information that is accurate and consistent.
As previously mentioned, one of the advantages of applying for an EIN online is that if you complete the application correctly, you’ll get your EIN immediately. However, you can also indicate how you’d like to receive your EIN confirmation letter. This could be received online too, or by mail if you prefer.
Once you’ve provided all the information outlined above, you’ll be asked to verify the information you’ve provided and submit your application. If you’ve followed these steps correctly, your EIN should be ready in a few minutes.
In this guide, we’ve walked through the meaning of an EIN, why you may need or want to apply for one, and the exact steps you’ll need to follow to get it. While the process may seem complex and time-consuming, if you follow these steps, you’ll be off to a great start! If you enjoyed reading this guide, this guide to small business ideas to run your own business Is another you may enjoy too.
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