WHEN IS A SOLE PROPRIETOR REQUIRED TO HAVE AN EIN?

There are times when a sole proprietorship need an EIN (Employer Identification Number) and others when it is encouraged but not legally required.

If your single proprietorship requires an EIN, now is an excellent time to learn the differences between a sole proprietorship and an LLC.

WHEN DOES A SOLE PROPRIETORSHIP REQUIRE AN EIN?

According to the IRS, “a single proprietor without workers who does not submit any excise or pension plan tax returns does not need an EIN.” If you recruit staff or file excise or pension plan tax returns, you will need an EIN immediately.

When a sole proprietor with an existing EIN becomes the sole owner of a limited liability company (LLC), the LLC will need a new EIN.

Is an EIN Required for a Sole Proprietorship?

If you don’t have workers or need to submit excise or pension plan tax returns, you don’t need an EIN. However, you may need one for other reasons. When determining whether or not to get an EIN for your single proprietorship, you should consider banking, company credit, and privacy.
Is my EIN linked to my SSN as a sole proprietor?

As a single owner, your EIN is not tied to your Social Security number. This is another advantage of obtaining an EIN even if it is not necessary.

Is sole proprietorship still the best business structure for me?

If your single proprietorship is big enough or profitable enough to recruit staff, you may be able to convert your sole proprietorship into an LLC.

The next stage in expanding a company is to form an LLC.

While being a single proprietor is a simple way to manage a low-profit, low-risk firm, you have no liability protection.

The most significant advantage of operating your firm as an LLC is liability protection. An LLC separates the personal assets of the company owner from the business. This implies that your personal assets are not at risk if the company is sued or unable to pay a debt.

Why get an EIN if one is not required?

Even though the IRS thinks it’s not necessary, there are numerous compelling reasons to get an EIN:

If you start your company without an EIN or workers, but later decide to recruit someone, you will already have an EIN.
Applying for an EIN rather than your Social Security number (SSN) protects your SSN and reduces the danger of identity theft.
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.
The EIN, like your Social Security number, is used by banking and credit agencies to monitor your business’s credit.
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.

HOW TO GET A FREE EIN FOR YOUR SOLE BUSINESS

The EIN Assistant on the IRS website is the fastest and easiest method for taxpayers to get a free EIN.

Here’s some information to assist you request your EIN number through the IRS EIN Assistant:

The IRS is open Monday through Friday from 7 a.m. to 10 p.m. to receive your EIN.
Only the United States and the U.S. Businesses headquartered in territories are eligible.
A valid Taxpayer Identification Number is required (SSN, ITIN, EIN)
Only one application per day may be made by the entity owner or responsible party.
Your application must be completed in a single session and cannot be saved.
If the session is not in use for 15 minutes, it will time out.
After completing the form, you will be issued an EIN.
Applications will not be handled if an EIN has already been acquired online.
Form SS-4 may be used to apply for an Employer Identification Number (EIN) via fax or mail.

Form SS-4 may be used to apply for an Employer Identification Number (EIN) via fax or mail.

If you are submitting by fax, please send your EIN application to (855) 641-6935.

If you want to apply by mail, send it to the Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999.

On the EIN Assistant, you must answer the following questions:

What kind of company do you want to start? (LLC, sole proprietorship, corporation, and so on.)
What is the number of owners in your company, and where is it located?
Why are you requesting an EIN?
Who will be the “responsible party” or chief executive officer of the company?

In addition, you must enter the name, SSN or TIN, and contact information for the person in charge of your company.

Applicants from Other Countries

You may still get an EIN if you do not have an SSN and are not a U.S. citizen. Simply download and complete the IRS Form SS-4. Section 7b may be left blank.