An Employer Identification Number (EIN), also known as a Federal Tax ID Number, is similar to a social security number for your company. The EIN enables the IRS to trace a company’s tax reporting.
Visit our What is an EIN page to learn more about when you need an EIN and how to get one.
BENEFITS OF EIN
Getting an EIN is typically a smart idea no matter what kind of company you operate. You may apply for one on the IRS website using the EIN Assistant.
You will not be wasting your time; it is a free and straightforward procedure with various advantages:
1. Submit Tax Returns
An EIN is necessary to file taxes if your company is a partnership, a multi-member LLC, or if you have workers. It is the identity you will provide to the IRS when you submit your company’s taxes at the end of the year. Every financial decision made on your company’s behalf will be associated with its EIN. You won’t have to worry about missing tax deadlines if you apply for one as soon as feasible.
2. Recruit Workers
If your company includes workers, you will need an EIN since a multi-member LLC does not file or pay taxes as the LLC; rather, each employee files their taxes individually under the LLC’s 1040 form. Employers must have an EIN in order to set up payroll, and the IRS will utilize the EIN to monitor payroll taxes. An EIN is required to register for your state’s employer taxes, such as workers’ compensation and income tax withholding on behalf of your employees.
3. Maintain Corporate Secrecy
If you’re a single-member LLC, an EIN may help you keep your corporate veil intact. The corporate veil shields business owners from personal culpability for the obligations of the company. Keeping your personal and business funds separate can assist you avoid breaching the company veil. It will help build credibility and professionalism by enabling your company to have a different identity from its owners.
4. Avoid Identity Theft
Applying for an EIN rather than using your Social Security number (SSN) will keep your SSN more secret, minimizing the danger of identity theft; keeping company and personal funds separate makes it less likely that someone will hack into your accounts. If you’re a single proprietor without an EIN and continue to give out your Social Security number to customers or suppliers, you’re putting yourself at danger.
5. Establish a Business Bank Account
To create a business banking account, most institutions demand an EIN. Another option to keep your personal and work funds separate is to open a company bank account. It will ease the process of monitoring and controlling your professional spending, allowing you to create more effective budgeting strategies for your company.
Company bank accounts will also provide you access to finance experts and services (such as payroll services and access to small firm loans) that will help you manage your business more efficiently. You may also obtain a company credit card with your bank, which has its own set of advantages.
6. Establish Business Credit
An EIN, like a Social Security number, is used by banking and credit organizations to monitor your business’s credit. Establishing good credit will aid in the financial health of your company, and obtaining an EIN is a necessary step. Having strong business credit may lead to lower interest rates, more loan qualifications, and a greater likelihood of future expansion.
7. Be Eligible for More Business Loans
Although an EIN is not essential to qualify for all business loans, many lenders prefer businesses that have established their business credit via a business bank account. If you have good business credit, you will have a greater chance of qualifying for certain loans. To even begin creating credit, you must first get an EIN.