Why Do You Need An EIN for Your Business?
How Can An EIN Help You?
You need an EIN if you want to run a successful business. A federal Employer Identification Number (EIN) is a unique identification nine-digit number the IRS assigns to businesses for mainly tax purposes. It is also known as a Federal Tax Identification Number. If you are in business, there are many reasons to have an EIN. First of all, having an EIN helps you separate your personal finances and personal life from your business life. In our previous blogs, we explained that separating personal accounts and business accounts are necessary in order not to be liable for corporate debt.
Having an EIN simplifies accounting and bookkeeping, and limits liability in the case of a lawsuit. In practice, you need an EIN, because it is not possible to run your business without it, whether in opening a bank account, reporting, or for credit institutions. Otherwise, you will lose money and time, and not be able to build trust for lenders and investors.
You need an EIN even if you have an employee
When Do You Need An Employer Identification Number?
According to RSI rules, you have to get an EIN number if you
- have employees,
- operate your business as a corporation or a partnership,
- file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms,
- withhold taxes on income, other than wages, paid to a non-resident alien,
- have a Keogh plan (a tax-deferred pension plan) or solo 401(k) retirement plan, and
- are involved with any of the following types of organizations:
- Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
- Real estate mortgage investment conduits
- Non-profit organizations
- Farmers' cooperatives
- Plan administrators
When Do You Need A New EIN?
You may need a new EIN in some cases if you are a sole proprietorship and have an EIN.
You will need a new Employer Identification Number if you:
- file bankruptcy under Chapter 7 (liquidation) or Chapter 11 (reorganization) of the Bankruptcy Code
- are a sole proprietor and take in partners and operate as a partnership,
- are establishing a pension, profit sharing, or retirement plan,
You do not need a new Employer Identification Number if you:
- change the name of your business
- change your location or add locations (stores, plants, enterprises, or branches of the entity)
- On the other hand, most states require you to register for a unique state tax ID number and you'll need a state tax ID for each state where you plan to hire employees or file taxes, even if your business already has a federal Employer Identification Number
- operate multiple businesses (including stores, plants, enterprises, or branches of the entity)
You need a State Tax Id Number in some cases
Is An EIN Different From A State Tax Id Number?
You also need a state tax ID number if your business must pay state taxes. A state tax ID number can help you protect your sole proprietor business a state tax ID number.
Income taxes and employment taxes are the two most common forms of state taxes for small businesses. Each state has its own regulations in terms of tax regulations. It is helpful to consult with a specialized Law Firm whether you need a state tax number. Although the process to get a state tax ID number is similar to getting a federal tax ID number, it would require some specific steps in each state.
Seven states namely Wyoming, Washington, Texas, South Dakota, Nevada, Florida, and Alaska impose no income tax. Tennessee and New Hampshire only impose a tax on income from dividends and interest. On the other hand, taxes also vary by state on workers’ compensation insurance and employment insurance. In some states, you need an EIN and a state tax ID number for your business, in some states you do not. You can get detailed information from the state website or Liberty Business, an expert on corporate business.
What Are the Benefits Of Having An EIN?
- An Employer Identification Number separates your business accounts from personal accounts.
- Getting an EIN helps you prevent identity theft. Having an Employer Identification Number means you can keep your SSN more private, lowering the chances of a thief stealing your SSN. By getting it, you do not need to use your SSN for your business activities. Successful companies are meticulous about corporate accounts.
- An EIN can contribute to your credibility and means that you have a serious business. Getting an EIN means more credibility for independent contractors and freelancers.
- Having an Employer Identification Number helps you build business credit, speed up the process of applying for a business loan, and to get a business bank account. Almost all business lenders check your business credit when evaluating your business loan application. An EIN helps you hire employees. You need an EIN if you have employees or are on the verge of hiring employees.
We Can Help You in Many Ways
In summary, having a Federal Tax Identification Number is a tax requirement for some businesses. Although an EIN is optional for other businesses, but there are many good reasons to get one anyway. Having an EIN also helps you register a business entity, obtain a business loan, open a business bank account, file your tax returns, apply for business licenses, and much more. Getting an EIN is as important for your business as a social security number (SSN) is in your personal life. Having a Federal Tax Identification Number also help you prevent identity theft.
To start and run your business in the US, you need a lot of documentation to be prepared. When you need an EIN, we can get it for you. You cannot be an expert in every subject you need. An expert consulting firm you can trust will save you time and money.
Comprised of experienced business attorneys, marketing experts, business advisors, and blockchain professionals, Liberty Business has the answers to any questions or needs a blossoming business may have.