Many entrepreneurs associate the need to obtain an EIN, or an employer identification number, with hiring employees. This is correct. It is a requirement to obtain an EIN if a business plans to hire, and pay, employees.
What if your business does not plan to hire employees? Should you obtain this tax ID? The answer is yes. Obtaining an EIN provides many benefits for businesses which go beyond hiring employees. Here are a few common benefits and what you need to know about the EIN application process.
What Is An EIN?
An EIN is a nine-digit number the IRS issues small businesses when they incorporate or form an LLC. It identifies and tracks employer tax accounts. By obtaining this tax ID, the IRS tracks your business activity. It makes sure the business collects payroll tax to remain in compliance.
I’m Not Hiring Yet: Why Should I Obtain An EIN?
Identifies Your Business
Another unique nine-digit number which identifies businesses is a social security number (SSN).
It is a legal requirement for entrepreneurs to identify their small business using one of these federal tax IDs. If you incorporate or form an LLC, you can choose to use either your SSN or EIN as a business identifier.
Once you obtain an EIN, you may use it instead of your SSN to identify your business. Many entrepreneurs decide to use their EIN to fill out paperwork. This is because an EIN is much less sensitive than an SSN. Since an EIN helps to act as a safeguard, many entrepreneurs use this tax ID when paying federal taxes or filling out payroll reports for extra peace of mind.
Your EIN may be a safeguard, but it still needs protection. Use this ID in situations as needed by your business. Keep the ID in a safe place, much like you would protect an SSN.
Open a Business Bank Account
Businesses which obtain this tax ID can open a business bank account.
Your small business needs a separate bank account. This ensures personal and professional finances do not co-mingle together. Most financial institutions require reviewing a certified copy of an EIN before opening a business bank account.
Establish Business Credit
What about business credit?
A business credit profile is separate from that of a business owner. Using an EIN to open a business bank account means you’ll be able to establish a business credit profile and build business credit.
Establish Pension, Profit Sharing, and Retirement Plans
Businesses which hire employees may decide to create employee benefit plans. Some of these may include pension, profit sharing, and retirement plans.
If you want to establish one — or all — of these plans for employees, you are considered a plan administrator. It is a requirement to obtain an EIN before establishing these plans.
No Expiration Date
Small business owners often need to renew certain documents. Some of these include annual reports or business licenses.
An EIN is the exception to the rule. After you obtain an EIN, it does not expire or require a renewal. This allows you to keep, and use, this federal tax ID forever.
How Do I File For an EIN?
You know you want to file for and obtain an EIN. However, it’s critical to know if your business is eligible for this tax ID before filing an application.
The eligibility requirements for an EIN filing are straightforward. The principal place of business must be in the United States or U.S. territories. The principal officer must possess a valid tax ID. This ID may be an SSN, EIN, or an individual taxpayer identification number (ITIN). Finally, remember the business must be a legal business formation. You may need to complete filing paperwork to incorporate or form an LLC if you are still a sole proprietor or an unincorporated entity.
After determining your eligibility, you may begin the filing process. Filing for an EIN is essential for keeping small businesses compliant with tax laws. Let’s help you obtain this tax ID! Contact us at mycorporation.com or give us a call at 877-692-6772.