If you’re a small business owner, having an Employer Identification Number (EIN) can be a major advantage for your business.
In this article we will explain the following:
- What an EIN is
- How it can help you and your business
- How to obtain one
Read on for all the details!
What is an EIN?
An EIN is a nine-digit number assigned to your business by the Internal Revenue Service (IRS) to identify your business for tax purposes. The easiest way to think about it is like a Social Security Number (SSN), but only for businesses. EINs are necessary for paying employees and managing business taxes.
Certain business structures (e.g corporations, partnerships, LLCs) are required to have an EIN, while others (e.g. sole proprietorships, independent contractors, gig workers) are not. There are many reasons an EIN number is beneficial, even if you’re not required to have one, and we recommend acquiring one even if it’s not mandated by law. Below, we’ll discuss why that’s the case.
Why have an EIN?
One of the biggest advantages of having an EIN is preventing identity theft. An EIN keeps your business and personal finances separate and reserves the use of your SSN for only personal needs, and helps protect your personal assets.
There are many other business-related advantages that come with having an EIN. For example, many states require an EIN before you can apply for a business license. Another important reason to have an EIN is that it’s required if you have employees. Even if you’re not at that stage yet, having an EIN gives your business the structure it needs to scale if and when you need to hire more help from the outset.
Additionally, when it comes to managing your business finances, many banks require an EIN to open a business bank account or take out a loan, so having an EIN – even if you’re not required to – will make these processes easier.
Having an EIN also makes filing your taxes easier. If you’re required to have an EIN and don’t have one before filing, you stand to open yourself up to major penalties. Even if you know you don’t need an EIN, having one can increase the probability that you’re granted certain tax benefits, the ability to open a business bank account, and prevent possible social security identity theft by separating your personal finances from your business finances.
How to obtain an EIN
In order to obtain an EIN, all you need to do is apply on the IRS’s website. The process is simple and free, and can be done on the IRS website, mail, fax, or phone (for foreign applicants). We recommend applying online, as this is the easiest and fastest method – you can complete it in just a few minutes! Before you apply, establish your business type (e.g. LLC, corporation, etc), and ensure that the person applying is an owner, principal or officer of the business. You can also sign a release if you’d like to have a third party apply on your behalf. Have your business’s founding date, your personal Social Security Number, and business’s address ready before you apply – you’ll need these for the application. If you apply online, you’ll receive your EIN immediately when you finish the application.
As we shared above, there are many advantages to getting an EIN, even if you’re not required by law to have one. The application process is quick and easy. If you’re a small business owner and don’t have an EIN yet, set it up today!