
LTD vs LLC: What Is the Difference?
Published on February 16, 2022
If you’re starting a company, you may have heard of various business structures you might choose, such as a limited liability company (LLC). You may also have…
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In the business world, your Employer Identification Number, or EIN, is like a social security number for your company, allowing the IRS to easily identify your business. It is also known as a Federal Tax Identification Number (FTIN), or sometimes for corporations it’s called a Tax Identification Number (TIN).
An EIN is used to identify US businesses and contains information about the state the company is registered in. It also identifies the taxpayers who are required to file tax returns for the business.
It is used by employers for filing taxes and is generally required for businesses when they open a business bank account.
Any kind of business entity can apply for an EIN, including sole proprietorships, partnerships, limited liability corporations (LLCs), C-Corps, S-Corps, non-profit organizations, government agencies, estates, and trusts. Even a sole proprietorship with only one employee can obtain an EIN. At the same time, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN and the business will be taxed at your personal tax rate.
You need to form your business entity before applying for an EIN because the EIN application will ask for the date of business formation and the legal name of the company. Acquiring an EIN is free and can be applied for easily online by any company based in the US or its territories.
The IRS has established simple rules for which businesses require an EIN. If you answer yes to any of the following questions, you need to obtain one:
Companies that answer “no” to all of the above questions are not required to have an EIN. These are:
There are several reasons to have an EIN, even if you are not required to have one.
The IRS states the requirements:
“All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the ‘responsible party,’ controls, manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.”
If you are a sole proprietor, clearly you are the person who should apply for the EIN. If the company is a corporation of any kind with multiple owners, or another type of entity with more than one responsible person, the person with the financial controls should be the applicant.
The application is free and can be found on the IRS website. The application is form SS-4, and it can be mailed to the IRS or submitted electronically. Once your information on the application has been validated, your EIN is assigned immediately. The EIN will never expire, and is never duplicated, even if you go out of business.
If, however, you change your business structure, you will probably need to apply for a new EIN. For example, if you are a sole proprietor and you decide to form an LLC, you will need to obtain a new EIN.
If you are not a U.S. citizen and do not have a social security number, you can still apply for an EIN. If you have just come to the U.S. and are planning to start a business, or if you are expanding your business to the U.S., you should form your business entity first, then apply for your EIN.
If you are required to have an EIN according IRS rules, it’s a good idea to get one right away. If you don’t have one and it delays your tax filings, you will face potentially severe penalties.
Having an EIN is beneficial for you as a business owner, even if it is not required. It opens up opportunities to grow your business and increases your personal security.
If you are a sole proprietor, consider the benefits of using an EIN. You might also consider setting up an LLC or corporation to protect your personal assets.
Published on February 16, 2022
If you’re starting a company, you may have heard of various business structures you might choose, such as a limited liability company (LLC). You may also have…
Read Now
Published on February 16, 2022
If you’ve recently formed a limited liability company (LLC), you may have some tax questions. One of the most important is about when LLC taxes are due….
Read Now