As a new business owner, one of your most important responsibilities is obtaining an EIN from the IRS. An EIN (Employer Identification Number) is used by the IRS to identify businesses and determine the taxes they will need to file. An EIN is similar to a Social Security number, but for businesses instead of people. Here are some quick facts about the EIN:
- It is also referred to as a Taxpayer Identification Number (TIN), a Federal Tax ID, a Federal Tax Identification Number, or even an FEIN.
- Some businesses may be required to have an EIN before even opening a bank account.
- Businesses need an EIN to be able to file their taxes.
Does every business require an EIN?
Businesses run by the sole proprietor, without any employees, typically do not require an EIN. Such businesses can be operated using the owner’s social security number. For example, the grocery store on the corner of your block, owned and operated by just one person, may not require an EIN. You must obtain an EIN if:
- Your business has employees,
- You own a corporation, partnership, or LLC taxed as a corporation or partnership,
- You have signed up for a Keogh plan, which is a pension plan available to self-employed individuals,
- You withhold some taxes to pay a non-resident alien,
- You file or intend to file employment, alcohol, firearms or tobacco tax returns, or
- Your business is linked to an estate, trust, or real estate investments.
There are also additional instances (not listed above) that may require you to obtain an EIN, such as applying for a loan, etc.
What exactly is an EIN used for?
An EIN is used for a variety of business activities, such as opening a business bank account, filing tax reports, applying for business licenses, submitting state taxes, and filing for returns electronically.
Qualified joint ventures and EIN
A qualified joint venture is a business owned and operated by a husband and wife partnership. Although the IRS does not require spouses to obtain EINs — spouses are treated as sole proprietors for tax purposes — we recommend that, if this applies to you, you continue to maintain an already existing EIN you have one. This can be beneficial in instances during which your business may be at risk of losing its qualified venture status.
How to apply for an EIN
The fastest way to apply for EIN is online. Click here to be taken to the official website. EIN applications can also be submitted via fax or mail. For more information on how to apply for EIN, click here. Obtaining an EIN is an important part of establishing and maintaining most businesses. We recommend that you apply for an EIN the moment you start planning your business.