Starting and managing a successful business involves obtaining an Employer Identification Number (EIN), a vital identifier for tax and financial purposes. In this guide, we offer valuable tips for a smooth journey toward business success.
Table of contents
- Understanding the Employer Identification Number
- Who Needs to Apply for an EIN?
- Why Do You Need an EIN?
- How to Apply for an EIN Number: Methods and Processes
- Designating a Responsible Party for Your EIN Application
- Tips for a Successful EIN Application
- EIN Confirmation and Usage
- Handling EIN-Related Issues
- Benefits of Obtaining an EIN
- Summary
- Frequently Asked Questions
Starting a business can be both exciting and overwhelming.
Amidst the countless tasks involved, one crucial step new business owners must take is obtaining an Employer Identification Number (EIN).
This unique identifier is essential for various aspects of managing a business.
But don’t worry – we’re here to help simplify the process of applying for an EIN, so you can focus on growing your business.
In this guide, we’ll walk you through the steps to apply for an EIN and explain its importance for your business success.
Key Takeaways
- An Employer Identification Number is a unique nine-digit sequence assigned to businesses by the IRS, serving as an identifier for tax purposes.
- You need an EIN to hire employees, borrow money, pay taxes, and open business bank accounts.
- Applying for an EIN can be done online, by fax, mail, or phone, with online applications providing the quickest processing time.
- After receiving your EIN, update your business documents and inform the IRS of any changes associated with your EIN.
Understanding the Employer Identification Number
An Employer Identification Number is a unique 9-digit number assigned by the Internal Revenue Service (IRS) to businesses for tax administration purposes.
Often referred to as a Federal Tax Identification Number or a Taxpayer Identification Number, an EIN is essential for businesses to file taxes, hire employees, and open bank accounts. To ensure smooth tax administration, it is crucial to have a valid taxpayer identification number.
Although it may seem similar to a Social Security Number (SSN), an EIN is specifically issued to business entities, whereas an SSN is issued to individuals by the Social Security Administration.
The importance of EIN for businesses
An EIN is crucial for businesses as it helps separate personal and business finances, safeguard personal assets, and preserve confidentiality. By obtaining an EIN, businesses can protect their personal assets from business liabilities and comply with certain business licenses and permit requirements.
In addition, having an EIN can prevent identity theft by keeping personal information distinct from business information.
Who Needs to Apply for an EIN?
An EIN is necessary for businesses with employees, multiple owners, or specific structures; however, sole proprietors may also choose to obtain one for potential future growth or identity theft prevention.
The responsible party, which is typically an individual owner or member, is eligible to apply for an EIN and serves as the point of contact for the IRS.
It’s important to note that for most Limited Liability Companies (LLCs), it is recommended to wait for state approval before applying for an EIN, with a few exceptions such as Louisiana and West Virginia LLCs.
Business entities requiring an EIN
All new businesses, including:
- Sole Proprietor
- LLC
- Corporation
- S-Corporation
- Non-Profit Organization
Businesses must obtain an EIN to hire employees, open a bank account, and comply with withhold taxes regulations. The IRS mandates these specific business structures to have an EIN to ensure compliance with tax regulations and facilitate financial transactions.
Additionally, foreign-owned LLCs can obtain an EIN without an SSN or ITIN, further emphasizing the importance of EINs in today’s global business environment.
💡 Pro Tip:
If you’re still unsure whether you need to apply for an EIN, check out the IRS’ questionnaire that will help you determine if you need an EIN or not.
Why Do You Need an EIN?
You need an EIN for various reasons, including hiring employees, borrowing money, paying taxes, and opening business bank accounts.
Hiring employees
Establishing a strong team is essential for your business’s growth and success. An Employer Identification Number becomes necessary when you’re ready to hire employees, as it allows you to set up a payroll system and comply with IRS regulations.
Securing your EIN ensures fair and equitable payment of taxes tied to employment.
Being in possession of an EIN places you in the desirable position of opening doors to skilled personnel who can contribute positively toward achieving the objectives of your business.
This unique nine-digit number issued by the Internal Revenue Service not only serves as an identifier but also streamlines several processes, like filing tax returns, thus enhancing administrative efficiency when dealing with hired staff members.
💡 Pro Tip:
Once your business is up and running and you’re ready to hire your first employees, use free small business software like Connecteam to manage all aspects of your business.
Borrowing
Borrowing for your business can be a crucial step in growing your operations. Too often, new entrepreneurs make the mistake of using personal credit to fund their businesses, which can lead to complex financial issues down the road.
This is where an Employer Identification Number becomes indispensable. When you apply for an EIN and have it handy, lenders do not need to rely solely on your personal credit score during small business loan applications.
Instead, they also take into consideration the creditworthiness of your business through its EIN; more so in states like Colorado, where this number plays a significant role in obtaining wage withholding account numbers needed for borrowing processes.
With an EIN enhancing your eligibility as a borrower, you open up opportunities for scaling up operations and generating increased revenues with funded resources.
Paying taxes
Paying taxes is an essential part of running a business, and having an EIN makes this process easier. By obtaining an Employer Identification Number, you can fulfill your tax obligations as a business entity.
This unique number allows the IRS to identify your business and ensures that your tax returns are accurate and filed correctly. With an EIN, you can also avoid using your personal Social Security Number for business-related matters, providing an added layer of security.
So, when you apply for an EIN, remember that it’s not just about getting a number – it’s about being responsible and compliant when it comes to paying taxes.
Opening business bank accounts
To open a business bank account, you will typically need an Employer Identification Number. Most financial institutions require an EIN to confirm the identity of the business owner and ensure fair and equitable banking practices.
Some banks may have strict policies that specifically mandate the use of an EIN when opening a business account. For sole proprietors, providing an EIN along with their Social Security number and identification is often necessary to open a business bank account.
How to Apply for an EIN Number: Methods and Processes
Obtaining an EIN can be done through various methods, including online, fax, and mail. Among these options, the online application process is the most efficient and convenient, as it allows applicants to receive instant EIN confirmation.
While fax and mail applications are viable alternatives, they typically involve longer processing times and require submitting additional documentation, such as Form SS-4.
Online application process
To apply for an EIN online, follow these steps:
- Visit the IRS website.
- Follow the online application process, which provides instant EIN confirmation.
- Ensure you have all the required information, including documentation verifying your business registration.
- Foreign individuals without an SSN can use an Individual Taxpayer Identification Number (ITIN) if needed.
One of the benefits of the online application process is the ability to access and print your EIN immediately, making it easier to start using it for your business needs.
Fax application process
To apply for an EIN through the fax application process, follow these steps:
- Download Form SS-4 from the IRS website or call them for assistance.
- Fill out all the required information on the form, including your business name, address, and contact details.
- Make sure to provide a valid reason for applying for an EIN, such as hiring employees or opening a business bank account.
- Fax the completed Form SS-4 to the IRS using a secure web portal like Faxaroo.
- The IRS will review your application and assign you an EIN within a few weeks.
Mail application process
To apply for an EIN by mail, you will need to submit Form SS-4. Here are the steps involved in the mail application process:
- Download Form SS-4 from the Internal Revenue Service (IRS) website.
- Fill out the form completely and accurately, providing all the required information.
- Double-check your form for any errors or missing information.
- Once you have completed the form, mail it to the appropriate address provided on the IRS website.
- Keep a copy of your completed form and any supporting documentation for your records.
Once your application is approved, the IRS will follow the appropriate procedures for your entity type and mail the assigned EIN to you.
Telephone application process for international applicants
To apply for an EIN as an international applicant, you can use the telephone application process. Here are the important points to know:
- The telephone application process is available only to international applicants.
- You can call the Internal Revenue Service (IRS) at 267-941-1099 to apply for an EIN.
- The phone line is open from 6 a.m. to 11 p.m. Eastern time, Monday through Sunday.
- Applying for an EIN by phone is a free service provided by the IRS.
- Even if you don’t have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), you can still apply for an EIN by phone.
Designating a Responsible Party for Your EIN Application
When applying for an EIN, it is crucial to designate a responsible party, typically an individual owner or member, who will serve as the point of contact for the IRS. This person is responsible for managing the entity and ensuring compliance with tax regulations.
By appointing a responsible party, you can ensure that your EIN application is handled efficiently and that any future communication with the IRS is streamlined.
Updating responsible party information
It is important to keep the responsible party’s information up-to-date to avoid any potential issues with the IRS. If there are any changes to the responsible party’s information, such as their name or SSN, you must update this information within 60 days by filing Form 8822-B with the IRS.
Regularly updating responsible party information ensures that your business remains in good standing with the IRS and helps avoid any potential penalties or delays in processing your tax returns.
Tips for a Successful EIN Application
To ensure a successful EIN application, follow these steps:
- Provide all required information.
- Complete the application in one sitting.
- Avoid using symbols in your business name, as this may cause issues with the application process.
By following the guidelines and preparing all necessary documentation, you can streamline the EIN application process and get your business up and running as quickly as possible.
EIN Confirmation and Usage
Once you have obtained your EIN, it can be used immediately for various business purposes, including tax requirements, hiring employees, and opening bank accounts.
Online applicants can access and print their EIN immediately, while mail-in applicants will receive their EIN confirmation through postal mail.
It typically takes up to two weeks for the EIN to be recorded in the IRS’ permanent records, but you can start using it as soon as it is issued.
Handling EIN-Related Issues
In case you encounter any EIN-related issues, such as misplacement of your EIN, rejection of your application, or the need to cancel your EIN, it is crucial to contact the IRS or follow the appropriate procedures.
For example, if you need to close your EIN account, you must submit a request to the IRS containing the following information:
- The full legal name of the entity
- EIN
- Address
- Explanation for the closure of the account.
By staying proactive and addressing any EIN-related issues promptly, you can ensure the smooth operation of your business.
Benefits of Obtaining an EIN
Obtaining an EIN offers numerous benefits for your business. Some of these benefits include:
- Protecting your personal assets and preserving privacy
- Facilitating business growth by enabling you to apply for loans and other forms of financing
- Streamlining accounting and bookkeeping processes, making it easier to manage your business’s financials.
In short, having an EIN is an essential step in establishing a successful and compliant business.
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Summary
Getting an Employer Identification Number is a crucial step in starting and managing a successful business.
With this guide, you now have the knowledge and tools needed to navigate the EIN application process, designate a responsible party, and handle any EIN-related issues that may arise.
So, go ahead and apply for your EIN today and embark on the exciting journey of growing your business.
Frequently Asked Questions
How do you get approved for an EIN?
To get approved for an EIN, apply online, as it is the preferred method, and the information will be validated during the online session, allowing you to obtain an EIN immediately.
Alternatively, you can fax or mail IRS Form SS-4 or, if international, apply by phone.
Is an EIN number free?
Obtaining an EIN is a free service offered by the Internal Revenue Service. Applying for an EIN is quick and easy and can be done online or by mail/fax.
It should be obtained immediately after registering a business and is necessary for federal taxes, employee hires, bank accounts, licenses, and permits.
Can I get my EIN form online?
You can apply for an EIN online if your business is in the United States or a U.S. territory. International applicants must use phone, mail, or fax to get an EIN. The application is free, and the Internal Revenue Service will provide it to you immediately.
What is the purpose of an EIN?
An EIN is a unique 9-digit number assigned by the IRS for tax administration, hiring employees, and opening bank accounts, providing businesses with an essential tool for managing their finances.
It is used to identify a business entity and is required for filing taxes, obtaining business loans, and other financial transactions. It is also used to track employee wages and benefits and to report employee taxes.
Who should be designated as the responsible party for an EIN application?
The responsible party for an EIN application must be an individual owner or member who will serve as the contact person for the IRS.