When it comes to an employer identification number, commonly referred to as an EIN, entrepreneurs often make the mistake of believing it is only necessary to have this ID when you want to hire employees. What if your business does not have plans to hire team members? Does your small business still need an EIN? The short answer is yes — here’s a look at the additional benefits that this federal tax ID number can provide your startup.
An EIN is less sensitive than a Social Security Number (but should still be protected).
Can you really use an EIN instead of an SSN on paperwork associated with your business? Absolutely. Legally, you are required to identify the entity of your business with either your SSN or EIN for government forms and documents. An EIN is a federal identification number issued by the IRS that identifies your business entity.
EINs are used as federal identifiers, which may help to safeguard against having your personal identity stolen. If you’d rather use precaution when it comes to your business, file for and use an EIN.
While an EIN has a reputation for being slightly less sensitive than your social security number, an EIN is still susceptible to identify theft. Both your social security number and employer identification number work to protect personal information, so take care to protect both numbers equally.
It’s difficult to get around running an incorporated business without an EIN.
There are certain documents that entrepreneurs may think they can wait to file. An EIN is not one of them. When a business has been incorporated, it becomes its own separate entity. You, the business owner, may technically be an employee of the company. The IRS will require your EIN in order to make sure the business collects payroll tax and stays in compliance.
Even if you are organized as a partnership, you must also file for an EIN. Partnerships mean there are two people or more involved with the business and they can’t use both of their social security numbers to identify the company.
Where else can I use an EIN?
Good question. Once an EIN has been issued, it never expires which allows small business owners to use it in the additional areas:
If you plan to open a business bank account and establish credit. This is applicable to a wide variety of legal structures including sole proprietorships, general partnerships, limited liability companies (LLCs), and S Corporations.
If you decide to change your organization type.
For filing annual tax returns.
For establishing pension, profit sharing, or retirement plans.
While I highly advocate in favor of filing for an EIN, I also know the rules of the road differ for every kind of business. Before you file any paperwork, it is in your best interest to consult an attorney or accountant for assistance and to ask them any questions you may have about the process.
Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, EINs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP. Please note that Bookly’s sponsorship of this blog article not intended to address the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.
The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
KPMG LLP does not provide legal services.