An employer identification number, also called an E.I.N., or business tax I.D.D. is a unique nine-digit number that you use when filing taxes for your business. You can also register a business with an E.I.N., get a business loan, open a business bank account, and do a lot more with it. An E.I.N. is important for your business in the same way that your Social Security number is important for you.
Some businesses have to get an E.I.N. because of tax laws. Other businesses don’t have to get an E.I.N., but there are good reasons to get one anyway. In fact, if you apply for an EIN, you stand to gain some clear benefits. The good news is that getting an EIN doesn’t cost anything and only takes a few minutes. Find out how to apply for an E.I.N. and the main advantages of getting an EIN.
How to Fill Out an EIN?
On the I.R.S. website, you can get an E.I.N. for free. You can apply online, by mail, by fax, or, if you’re from outside the U.S., by phone. Online applications are the easiest and take the least amount of time.
The person who wants an E.I.N. must be a business owner, principal, or officer (or you can sign a release to have a third party application on your behalf). Before you apply, make sure that the person applying has their own Social Security number, the address of the business, and the date it was started. If you fill out the form online, you’ll get your E.I.N. right away.
Nine Benefits of Getting an EIN.
Even if you don’t have to, you should think about getting an EIN In general, getting an EIN helps you keep your business finances and life separate from your personal finances and life.
And that’s important to make accounting and bookkeeping easier and reduce your risk of being sued. If you don’t get an E.I.N. now, it can cost you time and money later. Even if you are not required to get an E.I.N., there are many reasons why you should:
1. File Your Business Taxes to Avoid Tax Fines.
As If you were supposed to get an E.I.N. from NY Biennial Statement Online but don’t have it by tax day, you have to fill out certain forms to let the I.R.S. know. If you don’t do that, the I.R.S. might not accept your return, and you might have to pay penalties for sending it in late. Also, if you have an E.I.N., the I.R.S. is less likely to audit you for tax deductions like home office deductions.
Janet Gershen-Siegel, an attorney, says, “If the business owner wants to get tax benefits from owning and running a business at home, like deducting a room as an office, then Getting an EIN will help. Them make that case better and more effectively.” “Deductions for a home office tend to lead to I.R.S. audits. Why not argue your case before you have to?”
2. Keep your Identity Safe.
You might be astonished to learn that getting an EIN is a good way to stop your identity from being stolen. With an E.I.N., your business finances are kept separate from your personal finances. Once you have an E.I.N., you don’t have to give your personal Social Security number to clients or vendors with whom you do business. Instead, you can provide your E.I.N.
By giving out your E.I.N., you can keep your Social Security number more private. This makes it less likely that a thief will steal your Social Security number and take your hard-earned money. Thieves also steal E.I.N.s, but it’s not as common as the theft of consumer identities, at least not yet.
3. Give Yourself More Credibility as a Freelancer or Independent Contractor.
Even if they only lose one client, freelancers and independent contractors can lose a lot of money. You should do everything you can to make sure that people know you are a real business owner. When you get a new client, you’ll need to give them either your Social Security number or your Employer Identification Number (E.I.N.), so they can send you a 1099 tax form.
Getting an EIN gives you more credibility and shows that your business is serious and not just something you do on the side. Gershen-Siegel says, “Sometimes, selling things or giving services without an E.I.N. can make a business owner feel like what they’re doing isn’t really a business, per se. It’s not a big deal that they can quit at any time. It’s kind of a way to not “go all in.” But if you have an E.I.N., you’ve told the I.R.S. (and, in a way, the whole world) that you’re running a business and not just a hobby.
Having a business tax I.D.D. also shows that you’re a freelancer and not an employee, which is appealing to companies that might want to hire you. Companies hire independent contractors to save money and limit their Legal Founders responsibilities. Any proof that you are an independent contractor can help you get clients.
4. Make It Faster for Businesses to Apply for Loans.
If you have an E.I.N., getting a loan for your business will go faster. Most lenders don’t explicitly require one. You can apply for the loan as long as you have any business permits or licenses you need and are legally able to run a business.
The catch is that many lenders want applicants to have a business bank account with a certain number of deposits. This is to make sure you have a place to get the loan money and make payments on a regular basis. Usually, you need an E.I.N. to open a business bank account.
Also, some lenders, including S.B.A. lenders, look at your business credit when deciding whether or not to give you a loan. If you don’t have an E.I.N., you might not be able to get a loan for your business (more on this later).
5. Open a Bank Account for Your Business.
Some banks let sole proprietors open a business bank account without an E.I.N., but others have stricter rules. Sole proprietors and all other types of businesses need to show proof of their E.I.N. to open a checking or savings account at Bank of America.
To open a business checking or savings account, you will need to bring a few other documents along with your E.I.N. These include the date your business was started, its location, its legal name, and information about the owner. And once you open a business bank account, make sure that the only money coming in or going out is for business.
6. Gain the Trust of Your Vendors.
As the owner of a small business, you can’t do everything by yourself while building your business. Most of the time, you need to work with vendors, suppliers, and other businesses to reach your goals. If you have an E.I.N., these other people are more likely to work with you.
Before agreeing to work with you, these parties might want to check your business credit. Before doing business with a retailer, wholesale distributors often check the retailer’s E.I.N. If you have an E.I.N., it shows that your business is legitimate and that you are a responsible person who will pay the vendor on time.
7. Build Credit for Your Business.
A business needs an E.I.N. in order to build a credit history. The credit history of a business is like your own credit history. But business credit looks at your company’s history of paying bills and being responsible with money instead of how you handle your own money.
A commercial credit report is on file for your business. A commercial or business credit report has a summary of your business’s credit accounts and payment history, just like a consumer credit report does. Your business credit report shows loans, business credit card activity, and payments to vendors and suppliers.
If you use your E.I.N. to apply for credit, that account will show up on your business credit report. If you pay on time, your business’s credit score will increase. This can help you get better rates on business loans and better terms from suppliers.
8. Make It Easy to Hire People.
If you already have employees or are about to hire people, you need an E.I.N. It can be hard to know, but getting an EIN isn’t a bad idea if you plan to grow your business to the point where you might need more help. But even if you don’t plan to hire people right away, it’s a good idea to get one if you think you might at some point. With an E.I.N., you can set up a payroll system as soon as you hire your first worker, so you don’t have to wait.
9. Get More Choices as an Overseas Entrepreneur.
If you are not a U.S. citizen and don’t have a Social Security number, getting an EIN can help you start a business. Foreigners can get an E.I.N. by getting in touch with the I.R.S. By getting an EIN, you might be able to open a business bank account or apply for a business credit card before you get a Social Security number. This will help you get your business off the ground and might even give you an edge over your competitors if you need to move quickly.