A friend asked me the other day: “Do I need an Employer ID Number (EIN) for my business?” Such a good question. The answer is a pretty straight forward yes if we are talking about corporations, partnerships, and multi-member LLCs. But what about sole proprietorships, single-member LLCs, freelancers, and contractors? Let me break it down.
First up, let’s make sure we are on the same page about what an EIN even is. Consider EIN as the Social Security Number of your business. The IRS issues your business a set of numbers – nine digits long. This set of numbers is your EIN, a way to identify your business. It comes in handy for tax filing purposes.
That’s not all though.
Consider these basic needs for your business:
- Hiring employees
- Opening a business bank account
- Contributing to your retirement account through your business
- Getting a business credit card
- Incorporating your business
- Applying for business loans, grants and line of credit
- Applying for building permits and licenses
- Filing bankruptcy for the business
If you do or plan to do ANY of the above, then you need an EIN. Even if you are just starting your business, you need an EIN. And make sure to use the EIN, instead of your SSN, for all business-related matters.
Don’t be so quick to provide your SSN on applications and forms. Protect your SSN by using your EIN instead of all business-related documents, applications, forms, and tax returns.
Now for some types of business structures, you have absolutely no choice in the matter and MUST have an EIN to operate your business. This includes Partnerships, Limited Liability Companies (LLC), and Corporations. These entities cannot legally form without a business tax ID (EIN).
You can take the risk of running a single member business without an EIN, but I won’t advise you to take such a silly risk for any type of business at all.
For security reasons, don’t even consider putting your business in danger by using your SSN for business purposes. Taxpayer Identity theft is at an all-time high. Scammers and thieves are looking to get their hands on your SSN. Don’t make it easy for them when it comes to your business; use an EIN. An EIN protects your vital personal information from getting into the wrong hands.
So how do you obtain EIN for your business?
Good news! It’s easy and free. Just go to the IRS website to apply. You’ll get your EIN immediately. Here is a quick link to apply.
And once you get your EIN, start using it. Instead of putting your SSN on anything business-related, use your EIN. Leave the SSN for personal matters only.
If you know a few fellow business baddies who could benefit from this message, please pass it along. It’s time to do business the right way without hesitation or apology.
Cheers to leveling up,
Chika
