With a new year comes new goals, and for some that might mean starting a new business venture. Starting a new business can be an exciting and rewarding journey but there is a lot to consider when diving in. One question we often hear is “Does my business need an EIN?”. An EIN (Employee Identification Number) is a unique nine-digit number assigned to a business entity by the IRS. They are used in place of a social security number for those self-employed and are used for things like filing taxes, opening business accounts and more. They are formatted as XX-XXXXXXX and issued directly via the IRS on their website free of charge.

For certain businesses that meet the IRS’ criteria, getting an EIN is not a choice but a requirement. This includes any businesses with employees (even sole proprietorships), businesses registered or taxed as corporations, multi-member LLCs, businesses that are inherited or bought from another person, any business looking to file bankruptcy and anyone self-employed who has a Keough plan or solo retirement 401(K) plan. But even if you don’t fit these requirements, it can be useful and helpful to apply for an EIN for your business.

Any business that is located in the United States can apply for an EIN online. Whoever is applying must be the owner, principal or officer of the business, and provide their own social security number, the business address and the founding date. But why would you want to if it isn’t necessary? There are many benefits. Firstly, even if you are a sole proprietor without employees, utilizing an EIN can help you keep your business and personal expenses separate. It provides you with an alternative to giving your social security number to clients or vendors to whom you provide services to. This can lessen your chances of identity theft and help you appear more legitimate and credible to potential business partners.

Using an EIN can also speed up your application for a business loan. While many lenders don’t require an EIN to apply for a loan, they typically do require that you have a business account with a certain number of deposits. To get that business account, you often need an EIN. For instance, Bank of America requires all business checking and savings accounts to be associated with an EIN, even if you are a sole proprietor. Building up your business credit can be an important factor in your loan eligibility, as well as setting up trust with potential vendors.

Overall, EINs are great for setting up your business for success whether you are a multi-employee company or a solo freelancer. They can help you separate your business expenses, set up bank accounts and establish credit as a business. Furthermore, they are easy to apply for and free. It’s important to note – if you also plan to incorporate or set up an LLC, do that first since you’ll need to provide the name of your company when you register for the EIN. If you have any questions regarding your tax status as a newly formed business or solo entrepreneur, feel free to reach out to ClarkSilva today. We love helping new businesses thrive!