Why Is An EIN Required For Business Accounting?
An Employer Identification Number is similar to a Social Security number for every taxpayer. It is also known as Federal Tax Identification Number. This is important as in this way the IRS identifies a particular organization.
Small business owners make use of their EINs to carry out activities that would otherwise need a Social Security number. Most of the entrepreneurs are in the confusion whether or not they require EINs.
Do you need an EIN?
This article will answer the question does your business requires an EIN?
As per IRS, every business should have an EIN if any one of the mentioned conditions are true.
● You have employees involved in your business.
● There are a number of business partners involved in your business.
● You withhold taxes on income other than wages paid to a nonresident alien;
● You have a Keogh Plan
● You have business relationships with certain organizations listed on the IRS website.
Apart from filing taxes, an EIN may also be required to:
● A bank account having your business name.
● Apply for a credit card in the name of your business
● Business permits are applied
● Fix independent contractors a Form 1099 [PDF]. Cross check with your accountant or tax professional.
To maintain privacy is another reason you will require an EIN. For Example, in case you have a large client list and you are professionally a contractor, you would like to keep your Social security number private due to the threat of identity theft.
You may rather apply for and provide an EIN. This will not knock out your possibility of falling victim to identity theft, by default, but it will likely to keep the thief away from accessing your personal accounts.
How can the user apply for an EIN?
It is highly recommended not to get attracted towards the online services that take charges from you to apply for an EIN.
You can apply for an EIN for free on the IRS website. You need to go to EIN application procedures.
This is the fastest and simplest way to apply for an EIN. You may take expert help by just filling the online form.
In many cases, if you apply EIN between Monday through Friday between 7 a.m. and 10 p.m. local time, EIN will be immediately received. You can also apply via. fax or mail by filling Form SS-4 [PDF].
Who Is the Responsible Party for EIN?
When you apply for an EIN, it is required by the IRS that the name and the taxpayer ID number (SSN, TIN, or EIN) must be disclosed. In case he is the person who’s responsible for the business. This should be the company’s principal owner, officer, general partner, trustor or grantor and is similar to registered for a state entity.
Can the user cancel the EIN?
No, the user cannot cancel the EIN once it is assigned, it relates to the registered business. As per the IRS, when the number is never used to file a federal tax return, it may not be assigned again to another business.
It can never be cancelled, rather, the IRS will close the account upon request. Later on, the responsible party may open the account again by writing to the IRS.
For more details about EINs, refer to IRS Publication 1635 [PDF].
Also referred as a Federal Tax Identification Number, an EIN is an exclusive nine-digit number tied to your business entity. In this way, an EIN is just like a social security number for a business.
Since your business is a brand name known to your customers and suppliers it doesn’t mean that the IRS identifies it in the same way. Alternatively, the government make use of an employer identification number (EIN) to identify every business for tax purposes.
Apart from ensuring your business from IRS compliant and allowing you to file tax returns, securing an EIN permits you to operate your firm more efficiently.
Many banks and lenders need businesses to possess EINs in order to open an account or apply for funding, and most states require that new businesses secure an EIN from the IRS so as to make tax payments.
As a result of this, it’s wise for businesses to apply for EINs before their launch dates.
Although it is not mandatory from the IRS that all businesses secure EINs, but it is necessary for corporations and partnerships. Moreover, businesses may require to secure EINs if one or more of the following conditions are applicable:
1. It employs workers.
2. It files employment, excise, or alcohol, tobacco and firearms tax returns.
3. It withholds taxes on non-wage income for nonresident aliens.
4. It is involved with trusts, estates, real estate mortgage investment conduits, nonprofit organizations or farmers’ cooperatives.
In case the IRS does not need your business to hold an EIN, a company have the option to secure one for privacy purposes, or make it easier to open a bank account or secure funding from lenders.
How to Get an EIN Number
Most of the small business owners may decide to change their firm’s legal structure proportionate with the growth and development of the company.
No matter whether you’re incorporating, taking on a new partner, changing names or locations or transferring ownership, you will be required to secure a new EIN. The IRS makes it simpler to secure an employer identification number.
The first step to get an EIN is setting up a viable business entity. Once the business is established, you can visit the IRS website and select the “Begin Application” button.
After that, you will be required to have the chance to identify the appropriate legal and tax structures for your firm. Some of the Common business structures include partnerships, S-corporations.
In case you select an LLC as your business type, the site will ask you to provide the number of LLC members and the state in which you’re located. Business Owners should also be prepared to explain the reason why they’re applying for EINs.
For example, you might start a new business or change your current legal structure.
You need to have a business category, a primary contact person and supply your business’ legal and trade name information.
You need to follow the steps on the IRS website, and ensure to answer all questions honestly and completely. Once you are finished filling your application, you will be asked to choose whether you’d like to receive your EIN confirmation letter online or by regular mail.