The employer identification number (EIN) is a number that is required if you want to pay your taxes as a sole proprietor. It allows the IRS to identify you when you are filing taxes, whether you file quarterly or annually. However, not all people who are running a one-person business need to use the EIN. Here are some things to know about the number and whether or not you need one.
Is the EIN always required?
While it is a good idea to have an EIN, and you always have the option to do so, it might not actually be necessary. Some states do require it of all sole proprietors, while others simply suggest you use it. Check with your local small business office to find out the exact rules for your state and county. Some situations where it is a good idea to have an EIN are:
- You are switching from an LLC or partnership
- You have a solo 401k plan
- You employ at least one person
- You need to file for bankruptcy
- Your business is one you inherited
If you are opening a business account, your bank might also require the EIN.
Reasons to Get an EIN
There are many reasons to get an EIN, even if you have determined you don't really need one. One good reason to get an EIN is because it can help establish you as a professional in your field. You can always use your SSN in lieu of the EIN, but this makes it obvious you are a one-person business and some customers or clients might not view you as professional as a company with their own employer identification number.
Another reason is because it can help protect you against identity theft. There are many occasions where you need to enter your tax information, which would require either using your SSN or EIN. If you use your SSN, this puts you at risk of identity theft. Even if the company requesting it is safe and protected, entering it online or sending paperwork in the mail with that number can be a risk. With your EIN, it is a lot more difficult to be a victim of this type of crime, so you get more protection.
If you have decided to get an EIN, it is as simple as filling out an online form at the IRS website. You can also download the form and mail it in to your local IRS office for your EIN.
To learn more, contact a small business lawyer like Ponath Law Offices.