7 Benefits of Getting Your Small Business a Tax ID Number
< View All PostsEvery business needs an Employer Identification Number (EIN) – also known as a business tax ID. This nine-digit, unique number is used for filing taxes, registering entities and more – making it just as important for a company as a personal Social Security number would be. In this blog post, we’ll discuss the importance of obtaining an EIN, when one is necessary and the benefits associated with getting one.
For some types of businesses, having an EIN is required by law; while others are not legally obligated but can benefit from owning one anyway. Many people associate EINs with big corporations, but even a freelancer or the owner of a very small business might need an EIN to file business taxes and for other purposes. If you do need a small business tax ID, it’s best to get one as soon as you open your business, as part of your business setup process. The following types of businesses must get an EIN for tax purposes:
- Any type of business entity with employees (including sole proprietors)
- Corporations and any entity taxed as a corporation
- Multi-member LLCs
- If you buy a business or inherit a business
- If you have a Keogh plan or solo 401(k) retirement plan
If you don’t meet any of the descriptors above, you most likely don’t need an EIN. That means millions of sole proprietors, including freelancers, technically don’t need an EIN. But don’t worry, there are plenty of reasons to get one anyway, which we’ll be discussing in the next section.
Benefits of Getting an EIN
When it comes to running a successful business, having the right tools and resources is crucial. One of those tools is an Employer Identification Number (EIN), also known as a small business tax ID number. This unique nine-digit number is assigned by the IRS and is used for a variety of purposes, including filing taxes, registering a business entity, obtaining a business loan, and opening a business bank account.
Here are just a few of the benefits of getting an EIN for your small business:
- Business Taxes
Your EIN is crucial when it comes to your business tax returns. If your business entity files taxes as a separate legal entity, then your EIN will be necessary. Without one, you may face financial penalties.
- Prevent identity theft
An EIN can also help protect your personal information. It separates your personal finances from business finances, so you don’t have to provide your personal Social Security number to clients or vendors. Instead, you can provide your EIN, which keeps your personal information more private and lowers the risk of identity theft.
- Professionalism
For freelancers and independent contractors, having an EIN can add credibility to your business. When you take on a client, you’ll have to provide either a Social Security number or EIN to them, so they can furnish you a 1099 tax form. Having an EIN signifies that you have a serious business, rather than a hobby or side gig.
- Licenses
If your business requires licenses, you’ll need an EIN. These provide state and local authorities the information they need about your organization and help verify that you have the credentials necessary to run your business in accordance with regulations.
- Hiring Employees
If you plan to hire employees, you’ll need an EIN to handle their tax withholding and to set up payroll. An EIN can help you file all the necessary paperwork and keep your business compliant with the IRS.
- Separate personal and business finances
An EIN can help separate your personal finances from business finances, which can simplify accounting and bookkeeping and also limit liability in case of a lawsuit.
- Establish credit
An EIN is required by credit card companies to create a business account. This launches a commercial credit report, which can help boost your chances of good loan rates from vendors and creditors.
With all these benefits, it’s easy to see why having an EIN is essential for any small business. The good news is that applying for an EIN is free and takes just minutes. So if you haven’t yet obtained an EIN for your small business, now is the time to do so!
Bottom Line
Obtaining a small business tax ID number, or EIN, is a crucial step in setting up and running your business. Not only is it required for certain legal and tax purposes, but it also offers many benefits such as separating personal and business finances, adding credibility to your business, and establishing credit. It’s important to make sure you add getting an EIN to your business launch checklist.
How Eco-fyle Can Help
At Eco-fyle, we understand the importance of having a small business tax id number and the benefits it brings to your business. We specialize in helping small businesses with obtaining an EIN, as well as providing assistance in starting, running, and growing a business. We pride ourselves as experts in the field and are always available to answer any questions you may have. Contact us today to learn more about how we can help your small business succeed.
