I. Introduction
Starting a business can be an exciting adventure with limitless potential, but it also requires a great deal of preparation and paperwork. One important aspect of setting up a new business is obtaining an Employer Identification Number (EIN). An EIN is a unique 9-digit number issued by the Internal Revenue Service (IRS) that identifies your business as a taxpaying entity. In this article, we’ll explore how to obtain and protect an EIN for your business, why it’s important, and how to use it for tax purposes.
II. Step-by-Step Guide for Obtaining an EIN
The process of obtaining an EIN is straightforward and can be completed online or by mail. Here are the steps you need to follow:
1. Determine if you need an EIN
Any business that has employees, is taxed as a corporation, partnership, LLC, or nonprofit organization, or deals with certain types of products or services, such as alcohol or firearms, is required to obtain an EIN.
2. Gather the necessary information
Before you start your application, you’ll need to gather the following information:
– Legal name of the business entity
– Trade name, if applicable
– Mailing address
– Name and social security number (SSN) or individual taxpayer identification number (ITIN) of the responsible party
– Nature of the business
– Number of employees
– Start date of the business
– Fiscal year end date
– Whether you have a previous EIN
3. Complete the application
You can complete the EIN application online on the IRS website or by filling out Form SS-4 and mailing it to the appropriate address. The online application takes less than an hour to complete and provides instant results. If you choose to file by mail, it can take up to four weeks to receive your EIN.
4. Check your information and submit
Before submitting your application, double-check your information to ensure accuracy. Errors can delay your application or cause issues down the line. Once you’ve verified your information, hit submit and wait for your EIN confirmation notice.
5. Use your EIN for tax purposes
Once you have your EIN, you can use it to file taxes, open a business bank account, and apply for licenses and permits. Make sure to keep your EIN safe and secure as you would any other sensitive information.
III. Technical Aspects of Obtaining an EIN
For bookkeepers or accountants who assist clients with obtaining EINs, there are a few additional steps to take:
1. Obtain a Power of Attorney (POA)
To apply for an EIN on behalf of someone else, you’ll need a signed POA authorization document.
2. Fill out Form SS-4
Fill out Form SS-4 with the client’s information and attach a copy of the POA.
3. Submit the paperwork
Mail the Form SS-4 and POA to the appropriate IRS address, which is based on the client’s state.
IV. Pros and Cons of Using a Third-Party Service
While the process of obtaining an EIN is straightforward, some businesses may prefer to use a third-party service to expedite the process. Here are the benefits and drawbacks of using a third-party service:
Pros:
– Convenience: These services can complete the application faster than the IRS and offer 24/7 customer support.
– Expertise: Third-party services are knowledgeable about the EIN application process and can answer any questions you may have.
– Bundled services: Some third-party services combine EIN application assistance with other business-related services, such as business formation and registered agent services.
Cons:
– Cost: Third-party services charge a fee for their services, which can be higher than the IRS fee.
V. Reasons for Needing an EIN
Aside from being required to obtain an EIN under certain circumstances, there are other reasons why having an EIN can be beneficial:
– Business bank account: Banks typically require an EIN to open a business bank account.
– Hiring employees: If you plan to hire employees, you must have an EIN for tax purposes.
– Contracts and agreements: Many contracts and agreements require an EIN for identification purposes.
VI. Best Practices for Keeping an EIN Safe
Protecting your EIN is crucial to maintaining the financial health of your business. Here are a few best practices for keeping your EIN safe:
– Don’t share your EIN with anyone unless it’s necessary for business purposes.
– Keep your EIN and other sensitive business information in a secure location.
– Monitor your credit reports regularly for any unauthorized activity and report any issues immediately.
– If your EIN is lost or stolen, report it to the IRS and credit reporting agencies immediately to prevent fraudulent activity.
VII. Using an EIN to File Taxes
Once you have your EIN, you must use it to file taxes. Here’s how to properly reference your EIN on official tax documentation:
– Sole Proprietorships: Use your SSN as your business ID.
– Partnerships: Use your partnership’s EIN.
– LLCs: Use your LLC’s EIN or, if you are a single-member LLC, use your SSN.
– Corporations: Use your corporation’s EIN.
VIII. Conclusion
Obtaining and protecting an EIN is an essential part of establishing and maintaining a business. Knowing how to obtain an EIN, the reasons why it’s required, and how to use it for tax purposes can save you time and hassle in the long run. By following the steps outlined in this article, you can confidently obtain an EIN for your business and protect it against fraud and identity theft.
