If You Are In Business – Please Identify Yourself

Some of the most common questions that we encounter incorporating our clients are regarding the definition of and necessity for an Employer Identification Number (EIN).

What is it? Do I need it? How do I get one?

An EIN or Employer Identification Number is a unique number that is assigned to a business by the Internal Revenue Service. It is sometimes referred to as a Tax Identification Number or a Tax ID Number. The number has nine digits and usually appears as follows: 12-3456789. It serves a purpose very similar to an individual’s social security number and is used on tax returns, business permits, applications for bank accounts, credit applications and many other applications. Generally, all businesses need an EIN and stiff penalties apply if you fail to get one. Specifically, if you have employees, offer a benefits or pension plans, operate as a corporation or partnership or file federal tax returns you’ll need an EIN. Banks usually require an EIN before they will open an account for a company. Also, if you withhold taxes on income other than wages paid to a non-resident alien, an EIN is required. Involvement with any of the following organizations may also require an EIN Number: Trusts, IRAs, Exempt Organization Business Income Tax Returns, Estates, Real Estate Mortgage Investment Conduits, Non-Profit Organizations, Farmer’s Cooperatives and or Plan Administrators.

Having a separate tax ID number for a business will also serve to create boundaries between any individual’s social security numbers and the respective business number. This separation serves to limit the liability of members or shareholders and protects any personal assets which are not involved with the business. Sole proprietors may also have an EIN number – but only one.

You may require a new EIN number if you change your business structure or if you are a sole proprietor filing for bankruptcy, incorporating or operating as a partnership. Generally, all types of corporate entities including corporations, partnerships and limited liability companies will need a new tax ID number when they are formed. Single member LLCs are disregarded entities, so they do not need one. Consistent identifying factors are essential to the strength and security of any business entity and the EIN is your company’s key identifier.

The IRS offers the service online at: http://www.irs.gov with the completed SS4 form. The service is free of charge with the IRS – but can be a real hassle to obtain when time is of the essence.

Obtaining an EIN is made very easy and efficient through Harvard Business Services web site. Just go to  http://www.delawareinc.com/ourservices/taxid.cfm Most clients will obtain this number as part of their initial filing package, but you can file after forming a company if you initially neglected to do so. We can usually obtain your tax ID number in one to three business days with no effort or frustration on your part. The cost is minimal for the time savings of having to call the IRS and wait on hold for 45 minutes until they get to you. That’s why we operate under the motto: “We work hard to make forming a company EASY for you!”