As an entrepreneur, it's important to keep your personal and business lives separate. One way to do this is by getting an Employer Identification Number (EIN). This is a special number issued by the IRS that helps protect your Social Security Number (SSN) and makes your business appear more legitimate.
An Employer Identification Number (EIN) is like a Social Security Number for your business. It's a nine-digit number (in the format of 12-3456789) that you use for tax purposes. It's also known as a Federal Tax Identification Number.
Here are eight common reasons why might want to apply for an EIN:
- Separate legal entity: If your business is not a sole proprietorship, such as a corporation or LLC, you need an EIN because it must have its own identification number.
- Protect your SSN: By using an EIN, you can avoid sharing your personal SSN with vendors, clients, and tax authorities. This helps protect your identity from potential theft.
- Open a business bank account: Most banks require an EIN to open an?account in a business name.
- Apply for credit: When applying for a business loan, line of credit, or credit card, many banks will ask for an EIN.
- Hire employees: If you plan to hire W2 staff or withhold taxes, you must have an EIN. It's used for payroll tax reports and payments.
- Obtain licenses and permits: When applying for business licenses or permits, you'll need to provide your EIN.
- Use a Keogh Plan: This retirement plan requires a business to have an EIN.
- File taxes: When filing tax returns for employment, excise, or specific industries like alcohol, tobacco, and firearms, you'll need an EIN.
How to get an EIN for your business:
Getting an EIN is free, and you can apply online through the IRS website. Here's a simplified step-by-step process:
- Determine eligibility: You can apply online if your business is in the U.S. or a U.S. territory. Otherwise, you'll need to apply over the phone.
- Visit the IRS website: Go to the IRS website and find the EIN application section https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online?
- Select your business type: Choose the type of entity your business is, such as sole proprietorship, partnership, corporation, or LLC.
- Provide a reason for requesting an EIN: Explain why you need an EIN, such as starting a business, hiring employees, or opening a bank account..
- Authenticate personal information: Enter your personal details, including your SSN, to prove eligibility.
- Share business location: Provide the address of your business, including the mailing address if different from your physical location.
- Provide business information: Give your business name, location, and formation details.
- Receive your EIN: Once you complete the application, you'll get a confirmation letter with your EIN.
You can only apply for one EIN per day per responsible party. You can also apply by fax, mail, or telephone if you prefer.
Having an EIN makes it easier to separate personal and business expenses. It also allows you to take advantage of various resources for small businesses, like business credit cards, business bank accounts, business loans, and expense trackers.
