What is an EIN?
An Employer Identification Number (EIN) is a nine-digit number assigned to businesses by the IRS. It is used to identify taxpayers who need to file tax returns. Though the primary reason for getting an EIN for many people is for tax purposes, it can help you to do so much else. For your business, an EIN is just as important as having an SSN for yourself.
To learn more on ‘what is an EIN’ and how to get one, visit TRUiC’s site; they have a range of useful information.
Do I need an EIN?
For some businesses, an EIN is a tax requirement. If you don’t get it, you are endangering your business and could face hefty fines, which could even end up impacting your personal life. If you fall into any of these categories, you’ll need to get an EIN:
- You have employees
- You’re a corporation/LLC taxed as a corporation
- You’re a multi-member LLC
- You bought or inherited your business
- You have a Keogh plan
- You need to file for bankruptcy
Even if you don’t meet any of the above descriptions, there are good reasons to get one anyway. In fact, you could face many disadvantages from not getting an EIN. And the good thing about getting an EIN is that it’s completely free anyway.
If you don’t get an EIN and you’re required to, as mentioned above, you could face tax penalties. It’s a good idea to do your research beforehand, and not wait until the last few days – the IRS can take up to five weeks to give you an EIN.
Furthermore, if you don’t have an EIN, for certain types of tax deductions, such as home office deductions for businesses, your chances of an IRS audit decrease if you have an EIN.
If you don’t have an EIN, you will be more susceptible to identity theft. An EIN separates your personal finances from your business finances. If you have an EIN, you won’t need to provide your own SSN to clients or vendors – instead you can give them your EIN. This means your SSN stays more private, lowering chances of a thief stealing it and getting access to your possessions. The problem of stolen SSNs affects millions of people every year in the U.S.
Loss of potential customers and business
For many small businesses the loss of even one potential customer can make a huge difference to a business. Having that customer could even be the difference between whether or not the business goes under.
You might be thinking, how does having an EIN affect this? Well, having an EIN gives your business a sense of credibility, and signifies that you have a serious business going on – not just some side gig. Sometimes having just an SSN can even make business owners seem as though they are not really official, and can quit at any time. Having an EIN tells customers, as well as yourself, that you are doing serious business – more than just a hobby, especially if you’re a sole proprietor doing something like freelance writing.
Piercing the corporate veil
A corporate veil is a legal concept that metaphorically symbolises the distinction between the company you have, as a separate legal entity, and the shareholders who own shares in the company. If you have a business in which the business is a separate legal entity – for instance an LLC or a corporation, not having an EIN could mean you end up piercing the corporate veil. This means that the shareholders, rather than the company, are liable for anything the company does. So, your limited liability instantly vanishes. Having an EIN is a great way to prevent this. This means you can open a business bank account and also build up business credit and take out business loans. The key word here is business – even filing business taxes is easier when all spending is in one place. If both finances are in one place, you can easily confuse the two and lose limited liability.