Getting an ein number for a sole proprietorship

Among the many advantages of a sole proprietorship is its simplicity. It is easy to set up. And there is less paperwork, especially when it comes to taxes.

As a sole proprietor, you file your business income and expenses on your individual tax return. Additionally, you use your Social Security number for your business activities.

But if you hire employees or open a business bank account, you may need an EIN.

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What Is an EIN?

An EIN, or employer identification number, is the number the IRS assigns to your business. Much like your Social Security number identifies you, an EIN identifies your business as a taxpayer. Thus, the EIN is sometimes called a taxpayer identification number or TIN.

How Do You Apply for an EIN?

First, you apply for an EIN by filing IRS Form SS-4 or filling out an online application. Then, the IRS attaches a nine-digit number to your business.

You use your EIN for all your business activities. For example, you will use your EIN when you:

• Hire employees
• Open business bank accounts
• File tax returns and withholding statements
• Apply for business licenses
• Apply for business credit or loans

When Does a Sole Proprietor Need an EIN?

IRS regulations do not require a sole proprietor to have an EIN. Instead, they allow the business owner to use their Social Security number as their taxpayer identification number. However, according to the IRS, an EIN is necessary when:

• You file excise tax returns
• You file pension plan returns
• You file Chapter 7 bankruptcy (liquidation)
• You file Chapter 11 bankruptcy (reorganization)
• You form a corporation, limited liability company, or partnership

Four Other Reasons To Get an EIN

Even if you don't need an EIN under IRS guidelines, it is wise to get one for other reasons, including:

1. You Want Protection from Identity Theft

When conducting business, you frequently use your EIN on various documents and applications. However, as a sole proprietor, you use your Social Security number. Therefore, you can protect your Social Security number by not sharing it and, instead, using an EIN.

2. You Work as an Independent Contractor

If you are a sole proprietor working as an independent contractor, having an EIN is another way to protect yourself. When working for a company, you provide your Social Security number. However, by using your business EIN, you keep your Social Security number private.

Additionally, businesses that hire independent contractors do not want them considered their employees for tax and liability reasons. Therefore, supplying your EIN instead of a Social Security number shows that you are an independent business entity.

3. You Would Like To Establish Business Credit & Credibility

Suppose you need business credit or a business credit card. In that case, you must include the EIN on the credit or loan application. Further, an EIN gives your business a more professional image.

4. Your State Law Requires It

State laws vary regarding the use of EINs. Many states require that businesses have an EIN if they apply for licenses, pay state taxes, or other purposes.

Unsure of Whether To File for an EIN? A Lawyer Can Help.

Sole proprietors can use their Social Security number for business activities. However, there are times when it is necessary to have an EIN for your business. If you are unsure if you need to file for an EIN, consult a small business attorney or accountant.

The simplest and most common business structure, a sole proprietorship refers to an unincorporated business run by a single individual. When you run a sole proprietorship, you report your business income as personal income and you get taxed accordingly. In contrast, with a corporation, the business pays you salary or dividends which you report as your personal income, and the business reports its own profits on a corporate income tax return.

Sole proprietorships need a special tax ID called an Employer Identification Number (EIN) for a number of different purposes. So that you’re prepared, here’s what you need to know about how to get an EIN for a sole proprietorship.

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Steps to Getting a Tax ID (EIN) Number for a Sole Proprietorship

1. Prepare Mandatory Business Information
2. Apply for a Sole Proprietorship Tax ID (EIN) Number Online
3. Apply for a Sole Proprietorship Tax ID (EIN) Number via Mail or Fax
4. How Do I Obtain a Tax ID (EIN) Number for my Sole Proprietorship?
5. How Long Does it Take to Obtain a Tax ID (EIN) Number for my Sole Proprietorship?
6. Why Do I Need a Tax ID (EIN) Number for my Sole Proprietorship?

1. Prepare Mandatory Business Information

If you need an EIN for your sole proprietorship, you need to provide the government with several details about your business. Ideally, you should gather the mandatory information before you start applying. That helps to eliminate hurdles along the way. You need the following pieces of information:

• Name of your sole proprietorship
• Doing business as (DBA) name of your business if applicable
• Contact info for your business
• Your name and Social Security Number (SSN) or Individual Tax Identification Number (ITIN)
• The EIN of your sole proprietorship if you have acquired an LLC are are obtaining another EIN
• Type of business
• Principal business activity
• Reason you’re applying for an EIN, potential reasons are detailed below
• Number and type of employees
• Whether or not you plan to pay more than $1,000 in employment tax for the year
• Ending date of your sole proprietorship’s tax year

You can apply for a sole proprietorship EIN online, and if you want to receive your number as quickly as possible, this is typically the best option. With an online application, you need to share the details mentioned above. You also need to provide an electronic signature for yourself. You can also designate another party to complete the application on your behalf.

Once you have all the required details, you can complete an online application from the comfort of your business, home, or any other location where you have access to the internet. Try to give yourself at least a half an hour to ensure that you have ample time to answer all the questions.

Visit the Online Tax ID (EIN) Application

3. Apply for a Sole Proprietorship Tax ID (EIN) Number via Mail or Fax

Alternatively, your sole proprietorship can also apply for an EIN through the mail or over fax. In this situation, you should print out a paper application. The details you provide about your company are the same as what you use for the online application.

After you fill out the application, you can fax it to the number or mail it to the address on the form. As applicable, make sure to include your fax number or return address. Without that information, the government can’t fax or mail you the number.

Note that you can also apply over the phone, but this option is only available to sole proprietorships based in foreign countries. You must make the call during regular business hours during weekdays.

4. How Do I Obtain a Tax ID (EIN) Number for my Sole Proprietorship?

To obtain a tax ID (EIN) number for your sole proprietorship, you simply need to follow these steps:

• Gather information about your sole proprietorship as explained above.
• Decide if you want to apply online, over fax, or through the mail.
• Note that if your business is based in a foreign country, your only option may be to apply over the phone.
• Fill out the application form.
• Submit the form online or fax/mail in paper forms.
• Wait for the government to send you a sole proprietorship EIN.
• Start using your EIN on tax documents and banking forms for your sole proprietorship.

5. How Long Does it Take to Obtain a Tax ID (EIN) Number for my Sole Proprietorship?

The process to obtain a tax ID (EIN) number for a sole proprietorship takes varying amounts of time depending on how you submit the application. With an online application, you can recieve your number within moments after you apply or at least on the same day in most cases. In contrast, if you fax in an application, you should expect to wait four days for the tax ID number to be faxed to you, and if you mail in your application, the process can take four to six weeks.

Note that if you don’t provide the requested information about your sole proprietorship or if you make other mistakes on your application, you may face processing delays. To avoid that, you may want to work with a tax ID obtainment service when looking for an EIN for your business.

6. Why Do I Need a Tax ID (EIN) Number for my Sole Proprietorship?

Sole proprietorships need an EIN if they hire any employees including family members. In fact, that is why this number is called an Employer Identification Number. In most cases, you don’t need an EIN for independent contractors, unless they are based in a foreign country or you need to withhold taxes for another purpose. However, employers aren’t the only business owners who need an EIN.

You also need an EIN if your sole proprietorship files an excise tax return or a return related to a retirement account or pension plan connected with your business. On top of that, if your sole proprietorship has an EIN and you purchase a limited liability company (LLC) that has employees, you need to obtain a new EIN for the LLC.

Additionally, many sole proprietors obtain EINs for banking purposes. In particular, if you want to open an account under your business’s name or apply for a business loan, you may need an EIN for your application forms.

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