Businesses also need EINs when they are required to file employment tax returns; excise tax returns; or alcohol, tobacco, and firearms returns. The following are reasons why you may need an EIN:. While EINs are necessary for corporations and partnerships, most sole proprietorships actually do not need them. When the grantor dies, his or her revocable living trust will become irrevocable and will require an EIN at that time.
Even though most sole proprietors will not need to obtain an EIN, it can be beneficial to obtain one in some cases. First, sole proprietors who act as independent contractors can help protect their identities by obtaining and using an EIN with their clients, rather than providing their own Social Security Numbers. Having an EIN may also make an independent contractor or sole proprietor appear more professional to potential clients.
Some sole proprietors find this helps them land and solidify client relationships more easily. When you apply for an EIN , you will need to have certain information available at the time of the application. That information includes:. If you are acting as a third-party nominee in obtaining an EIN for someone else, the IRS requires you to maintain certain information in your files.
Finally, if your business closes or an estate or trust has been fully administered and distributed, you can notify the IRS so they can close the tax account associated with that EIN. If you buy a business or inherit a business. If you have a Keogh plan or solo k retirement plan. But there are plenty of reasons to get one anyway. Generally speaking, having an EIN helps you separate your personal finances and personal life from your business.
Often, foregoing an EIN now can cost you time and money down the line. If you forget to do that, the IRS might not accept your filing, and you could face penalties for a late return. Plus, for certain types of tax deductions, such as home office deductions, your chances of an IRS audit decrease if you have an EIN.
Why not make your case before you have to? You might be surprised to learn that getting an EIN is an effective way to help prevent identity theft. An EIN separates your personal finances from business finances. Instead, you can provide your EIN.
Providing your EIN means you can keep your Social Security number more private, lowering the chances of a thief stealing it and getting access to your hard-earned profits. For freelancers and independent contractors, losing even one client can make a big financial difference. You want to do everything you can to cement your status as a legitimate business owner.
That they can quit at any time, no big deal. Companies conserve money and minimize legal responsibilities by hiring independent contractors, so any evidence in support of your status as an independent contractor can help you attract clients. You can speed up the process of applying for a business loan if you have an EIN. As long you have any necessary business permits or licenses and are legally qualified to do business, you can apply for the loan.
The catch is that many lenders require applicants to have a business bank account with a certain number of deposits. This is to ensure that you have a place to receive the loan funds and make periodic loan payments. To get a business bank account, you often need an EIN. In addition, some lenders, including SBA lenders, check business credit when evaluating your loan application.
Having an EIN helps you build business credit, without which you might not be eligible for the loan more on this later. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.
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Lawyer Directory. Call us at 1 Home Legal Information Business. An EIN is a unique tax identification number for your business that is used for tax filings, bank accounts, and other government filings. What would you like to name your LLC? Need time on your business name? Start now and decide later. Who Needs an EIN?
A federal employer identification number, or EIN, is a nine-digit number the IRS assigns to businesses for tax filing and reporting purposes. EINs must be used by business entities --corporations, partnerships, and limited liability companies. However, most sole proprietors don't need to obtain an EIN and can use their Social Security numbers instead.
Even so, you may want to obtain an EIN anyway. Also, some banks require you to have an EIN before they'll set up a bank account for your business. Theft of taxpayer's identities has become a rampant problem--identity thieves steal taxpayer's Social Security numbers and use them to file fraudulent tax returns and obtain tax refunds.
For this reason, it's wise to keep your personal Social Security number as private as possible. Obtaining an EIN allows you to avoid having to provide your Social Security number to clients and other members of the public. Using an EIN on your tax returns and payments also helps to show that you're an independent businessperson—in other words, an independent contractor and not an employee.
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