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All About Employer Identification Number (EIN): Who Needs It, How to Get It

Updated: Dec 18, 2023

What is an EIN?

An EIN, or Employer Identification Number, is a unique nine-digit tax identification number assigned by the Internal Revenue Service (IRS) in the United States to businesses, nonprofit organizations, estates, trusts, and other entities for tax purposes. It is also commonly referred to as a Federal Tax Identification Number (TIN).

Why do I need an EIN?

Just like how individuals have Social Security Numbers (SSNs) for tax identification, businesses and other entities require an EIN to identify themselves for tax-related activities. An EIN is used for a variety of purposes, including filing tax returns, opening business bank accounts, applying for business licenses, and hiring employees.

Different types of entities, such as sole proprietorships, partnerships, corporations, estates, trusts, and non-profit organizations, can all apply for and receive an EIN. It's a crucial piece of information for businesses to establish their identity for taxation and legal purposes.

Do I need an EIN to start a business?

In many cases, yes, you will need an Employer Identification Number (EIN) to start a business in the United States. An EIN is typically required for various business-related activities, even if you don't have employees.

What do I need an EIN for?

Here are some common scenarios where you might need an EIN when starting a business:

  1. Hiring Employees: If you plan to hire employees for your business, you'll definitely need an EIN. It's used to report employment taxes, withholdings, and other payroll-related matters.

  2. Opening Business Bank Accounts: Most banks require an EIN to open a business bank account. This helps differentiate your personal finances from your business finances.

  3. Filing Taxes: An EIN is used to identify your business entity when filing federal tax returns. This includes income taxes, as well as other business-related taxes.

  4. Applying for Business Licenses and Permits: Some local jurisdictions may require an EIN when you apply for business licenses or permits.

  5. Forming a Corporation or Partnership: If you're forming a corporation, partnership, or certain types of LLCs, you'll need an EIN to establish the legal identity of the business entity.

  6. Opening Lines of Credit or Applying for Loans: Some lenders might require an EIN when you apply for business financing.

  7. Filing Information Returns: If your business engages in certain types of financial transactions, you might need to file information returns with the IRS. An EIN is used to identify your business on these forms.

It's important to note that if you're a sole proprietor and you don't have employees, you might not need an EIN immediately. You can often use your Social Security Number (SSN) for tax purposes. However, getting an EIN for your business, even if not required, can help protect your SSN and create a clear separation between your personal and business activities.

How do I apply for an EIN?

To apply for an EIN, you can do so online through the IRS website, and the process is typically straightforward and free of charge. If you're unsure whether you need an EIN for your specific business situation, it's a good idea to consult with a tax professional or legal advisor.

Can I close or cancel an EIN?

Yes, you can cancel or close an Employer Identification Number (EIN) under certain circumstances. Here are a few scenarios where you might need to cancel an EIN:

  1. Business Closure: If your business has closed and you no longer have any tax obligations, you can notify the IRS to close your EIN account. This is important to ensure that you're not contacted for tax-related matters after your business has ceased operations.

  2. Change in Business Structure: If your business undergoes a significant change in its structure, such as converting from a sole proprietorship to a corporation, you might need to close the old EIN and obtain a new one that reflects the new structure.

  3. Change in Ownership: In cases of ownership transfer, you might need to close the EIN associated with the previous owner and obtain a new one under the new ownership.

  4. Bankruptcy: If your business goes through bankruptcy proceedings, you might need to close the existing EIN and obtain a new one as part of the bankruptcy process.

To cancel or close an EIN, you typically need to notify the IRS. The exact process can vary depending on the circumstances, and it's recommended that you consult with a tax professional or legal advisor to ensure that you follow the correct steps. Keep in mind that the IRS doesn't technically "cancel" an EIN like you would cancel a subscription. Instead, they update their records to reflect the change in status or ownership. If you need to close an EIN, it's important to communicate with the IRS to ensure that your tax obligations are properly addressed.

Remember that even if you close an EIN for one business entity, you might need to obtain a new EIN if you start a new business or if your circumstances change in a way that requires a new tax identification number.

Need more assistance? Be sure to secure your EIN from Z Branding & Business Solutions.

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