Running an enterprise is a multi-facet affair embracing practical and formal parts. A practical part is about ongoing business operations, marketing strategies, advertising, commerce, sales, and everything that works to earn money and make your venture profitable.
Meanwhile, a formal part is about papers, legalities, statutory regulations, and government rules. Less visible and tangible, it is no less important. It forms compulsory prerequisites for your business activities to be eligible and lawful. Some entrepreneurs disregard or neglect a formal part to some extent focusing all their effort on practical actions. However, without a properly formed and maintained legal entity, you won’t be able to achieve your targeted business goals.
When your company is registered, you still have quite a number of maintenance aspects to match. Getting an EIN number is one of those aspects. If you often come across this abbreviation yet know little about it, keep on reading to find out more.
This abbreviation stands for an Employer Identification Number. Some other names you might spot are a Federal Employer Identification Number, a Federal Tax Identification Number, or a Federal ID. Whatever the name, it’s a one-of-a-kind nine-digit number assigned to each business entity by the Internal Revenue Service (IRS). To make it clearer, an EIN for an enterprise or organization is the same as a social security number for an individual. Notably, this number is applied only to legal entities, i.e. you first need to form a legal structure and then acquire an EIN. It can be used by any type of entity, be it a sole proprietorship, nonprofit, LLC, corporation, or even a trust and government agency. The IRS calls for businesses to get EINs to identify legal persons as tax-payers at all levels.
What Is an EIN Used for?
Initially, companies need to register for EINs to match the IRS requirements related to taxation. Yet, there are many other business-related situations when this number will come in helpful too:
- Hiring employees: If you are going to create a complex business structure like that of a multi-member LLC or a corporation and plan to engage hired workers, you’ll need an EIN to create payrolls and be able to register for employer taxes your venture will be exposed to;
- Enhancing liability protections: An EIN will contribute to a corporate veil shield drawing a line between your personal and business assets. Besides, by further proving your company’s existence as an independent entity, it will strengthen the credibility of your venture;
- Lowering the risk of identity theft: Obtaining an EIN for your enterprise, you’ll be able to keep your social security number private and away from public access, thus, reducing the possibility of anyone stealing your personal data and using your accounts;
- Opening a business bank account: An Employer Identification Number is a requirement to set up a separate account for your company in most banks. Meanwhile, a business bank account is a simple yet efficient method of separating your individual and company finances and keeping track of your company cash flows. Besides, a business account will provide access for your organization to some useful services;
- Creating a good business credit profile: Credit agencies and financial institutions use EINs to trace credit profiles of businesses. A solid credit profile maintained by an EIN will improve your credit opportunities and, as a result, opportunities for expanding your business;
- Better chances to get business loans: Many companies seek to maintain their business growth via bank loans. While an EIN is not a requirement when applying for a business loan, banks are more eager to approve loans for organizations with good credit profiles and established business bank accounts.
Who Needs an EIN?
Basically, the need for an EIN is not determined by the scope of your business or the size of your company. Thus, both sole proprietorships and corporations qualify for an EIN. This number is a must for employers and businesses operating under a partnership or corporate legal structure. At the same time, you might need to get an EIN for your enterprise:
- If your business reports employment, alcohol, tobacco, or excise taxes;
- If you retain taxes on incomes of non-residents not related to salaries;
- If you work with trusts, estate handling, property mortgages, nonprofits, plan administrators, or farmers’ communities.
A full and detailed list of those who need an EIN is available on the official IRS website. Make sure to check it when establishing an enterprise or expanding your venture.
When Does the IRS Require an EIN Number?
The IRS deals with taxes and functions as a tax controller defining and stipulating the types of taxes for different legal entities and controlling those entities diligently pay taxes they are exposed to. Individual EINs help the agency to quickly identify the company and trace its tax payments and financial history. This tax ID number makes it easy to keep an eye on your tax returns, financial reports, statements, and all financial transactions performed by your firm as a legal entity.
Speaking of legal entity types, sole proprietorships usually don’t have to acquire an EIN unless they hire employees or seek to open a business bank account. The same is true for single-member LLCs. As for LLCs, they are recommended to get an EIN irrespective of the number of members to solidify the corporate veil protections.
By way of contrast, partnerships, multi-member LLCs, corporations, and nonprofits are required to have EINs in place to file taxes in a due manner and meet the IRS reporting rules.
How to Apply for an EIN
Basically, there are three ways you can apply for an Employer Identification Number including online, fax, and mail applications. The good news is that all of these methods are free of charge and issuing an EIN will cost you nothing. Besides, the application process overall is fairly simple and won’t take you much time. Let’s dig a bit deeper and take a closer look at each of these methods.
Online application is accessible via the EIN assistant digital tool available on the IRS website. You will have to fill in and submit an electronic form by specifying such info as the type of your legal entity and the main industry it operates in, why you apply for an EIN, and the date of the EIN enforcement. Noteworthy, online application is not available to foreign companies. Besides, to submit online, you need to have an individual social security number at hand.
Online application is available from 7 a.m. to 10 p.m. on business days. And the best thing is that your form will be reviewed once you complete it, and the EIN number is issued immediately.
You can download a dedicated Form SS-4 from the IRS website, print it out, and complete it by hand. A filled form can be faxed to the IRS office on a daily basis 7 days a week. In other words, you can fax it at any time. It will take the IRS some time to check and approve the form, and your EIN will get back to you in 4 business days.
A finished printed Form SS-4 can also be mailed to the IRS service center. You can search for the appropriate address of the center in your locality through the IRS website. Mailed forms are reviewed within 4 weeks, and the EIN will be sent to you in a letter too.
Obviously enough, the online method is the fastest and the simplest one. It allows you to acquire your EIN on the same day, which is great, especially when you urgently need an Employer Identification Number for some reason.
It’s also worth mentioning that international applications from non-US residents are accepted only by phone. The IRS service is available for calls from 6 a.m. to 11 p.m on weekdays. A help rep will ask you questions on the Form SS-4 and establish an account for you to issue an EIN.