Sole Proprietorship and EIN
EIN, Employer Identification Number is an exclusive nine-digit number allotted to organizations for the purpose of tax reporting. Also known as Tax Identification Number, EIN is allocated by the Internal Revenue Service or IRS. Corporations and partnership firms are necessitated by law to have an EIN. However, in the case of a sole proprietorship, this is not mandatory. Sole proprietors can use their Social Security Number to show their income and expenses on a Schedule C tax form. But, many sole proprietors still choose to get an EIN to diminish the likelihood of identity theft.
Often, getting an EIN for a sole proprietorship proves beneficial in many scenarios. It enables the business owners to file pensions or alter the business structure. In this post, we will guide you through the various steps for getting a sole proprietor tax id. But first, let’s look at some reasons why getting an EIN is so important.
Why Get an EIN In Sole Proprietorship If It’s Not Mandated?
Sole proprietors can use their Social Security Number instead of getting an EIN. However, there are two good reasons to apply for an EIN.
Evade identity theft
Theft of taxpayer’s identity has become a massive and widespread issue. Identity hackers easily steal the taxpayer’s Social Security Number and use it to file deceitful tax returns and attain tax refunds. Thus, it is advisable to keep the Social Security Number private and protected.
Also, many times, sole proprietors have to share their Social Security Number with their clients, or the client has the right to withhold some percentage of the payment. Obtaining an EIN enables the proprietors to avoid sharing their Social Security Number with their clients or any public members.
Establish an independent contractor status
Using an EIN on your payments and tax returns helps to establish your status as an independent contractor. This status can make you much more attractive to potential clients.
Apart from these, there are a few other reasons why getting an EIN for a sole proprietorship is a good idea.
- You can easily change your business structure to a corporation
- You can take on partners and form a partnership
- You can alter your LLC to be taxed as a Corp or S Corp
- You can alter your business structure to a multi-member LLC
- You can purchase or inherit a surviving business that you operate as a sole proprietorship
Steps to Getting an EIN for a Sole Proprietorship
Gather the necessary business information
The first step involves providing all the necessary details about your business to the government. This includes the following:
- Name of your sole proprietorship firm
- DBA name of the business, if applicable
- Type of business and principal business activities
- Contact information
- Your name and Social Security Number or Individual Tax Identification Number (ITIN)
- Number and type of business employees
- Whether or not you intend to pay $1,000 or more in employment tax each year
- Reasons for applying for an EIN
- Last date of your sole proprietorship’s income tax year
Apply for an EIN online in sole proprietorship
This is the best and quickest way of applying for an EIN for your sole proprietorship firm. With an online application, you need to share all the aforementioned details. You can also easily share your digital signatures along with the obligatory information.
Apply for EIN via fax or mail
If not online, you can also apply for your sole proprietor tax id through the mail or fax. In this case, you need to print out a paper application. All the details about your company are the same as that you offer in your online application.
Once you have filled the application, you can mail it or fax it to the number mentioned on the form. Make sure to mention your fax number or return address within your application. Alternatively, you can apply over the phone. However, this option is only available to sole proprietors based in some foreign country.
Once you have submitted all the information, you need to wait for the government to send you the sole proprietorship EIN. Following that, you can start using your EIN on tax documents and banking forms for your firm.
Liberty Business Team Is Ready to Help You!
To start and run your business in the USA, you need a lot of documentation to be prepared. When applying for a U.S permanent worker visa or any visa, we can help you. You cannot be an expert in every subject you need. An expert consulting firm you can trust will save you time and money. For your U.S. trademark registration, our business consulting team can help you avoid any possible problem.
Comprised of experienced business attorneys, marketing experts, and business advisors, Liberty Business has the answers to any questions or needs a blossoming business may have.