Employer ID Numbers: Our Basic Guide for Businesses
Starting a business means learning about a whole host of information you never thought you would have to know. The place where most people get stuck is in the financial realm. Unless you’re an accountant yourself, words like Schedule C, balance sheets, and Employer ID Numbers can have an anxiety-inducing effect. If accounting is not your jam, you might put off learning the financial ins and outs of your business until you’re forced to.
We’d like to bring you up to speed as quickly and as easily as possible so that you’re not in a position where avoidance mutates into a problem.
When it comes to the Employer ID Numbers or EINs, no one is knocking down your door on day one of your business to get you one. That doesn’t mean you don’t need it, though. Let’s explore what it is, who is required to have it, when you need to get it and why you might just want one even if it isn’t required. The best way to empower yourself is with knowledge. In just a few minutes, you can feel confident about this important piece of tax information.
What are Employer ID Numbers?
Employer ID Numbers primarily serve as an identifier for federal tax purposes. It distinguishes a business the same way a social security number distinguishes an individual. This is a tool used for tracking your company’s activities, doing business with others, and interacting with employees. Even if this is the first business you’ve ever owned, you’ve likely seen an EIN for companies you’ve worked for in the past on your W2. The identification number is unique to your company and can be used in a variety of ways.
When is it most applicable?
Many business owners struggle with the question of whether they need an EIN. Most sole proprietors can get by just fine using their social security number, so applying for yet another number can feel extraneous. That being said, if there are regulatory requirements around having an Employer ID you want to know about it in order to avoid costly fines and penalties.
If you aren’t entirely sure if your business needs an EIN, here are the key factors or indicators that will say you do:
Your business has employees
You are operating your business as a corporation or partnership
You have a limited liability company (LLC) taxed as a C corporation or S corporation
You regularly file an employment tax return, excise tax return, or alcohol, tobacco, and firearms return
You withhold taxes on income, other than wages, paid to a non-resident alien
You have a Keogh plan
The most common factors that require an EIN is if you have employees or if you’re an LLC, but it’s important to understand all conditions under which this is required to make sure your ducks are in a row.
Which type of businesses usually need an EIN?
Taking the classifiers mentioned above into consideration, there are certain businesses that are expected to have an EIN based on the type of business they are running. The organizations that are required to apply for this form of identification are:
Trusts (except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns)
Estates
Real estate mortgage investment conduits
Non-profit organizations
Farmers' cooperatives
Plan administrators
How do you apply if you need an EIN?
Applying for an EIN is done through the Internal Revenue Service (IRS). You can apply by phone, fax, or mail. Also, the IRS offers signups through their recently available question-and-answer method, which can be accessed online.
Another important aspect to consider is that even if you’re not required to have an EIN, you might still want one. Some people feel that using their social security number is sufficient. Others feel that number should only be used for personal needs and want an ID for their business that is separate from this vital piece of personal identification. Even if you aren’t required to have an EIN, you can still get one to use in place of your own social security number for the purposes of filling out W-9s or to have the opportunity to apply for things such as a business bank account.
Often business owners get hung up on the flurry of financial words flying in their direction. When you break it down, though, a lot of these concepts are totally within reach for entrepreneurs to understand. Many prefer to leave all of this in the hands of professionals, and that’s fine too!
At Beam Financial Group, we provide accounting services to small business owners who want to maximize their profits by bringing in professionals who can help uncover all the financial opportunities within their company. Get in touch with us today to see how we can help with small needs, like getting an EIN and big needs, like helping you plan for your next big level up.