You know the saying, two heads are better than one? Well, in business, partnerships are exactly that: multiple heads running a business.
Partnerships are inexpensive business entities that are easy to establish and maintain, with profits, loses, and liabilities shared equally among the owners.
Partnerships, like most business entities, require a formal tax identification number, commonly called an Employer Identification Number or EIN.
EINs are assigned by the Internal Revenue Service (IRS), and serve the same purpose for a business as a social security number does for an individual. EINs track the partnership’s income, which is then reported on each partner’s individual tax return. It also helps identify taxpayers who are required to file business tax returns.
Do I Need an EIN for My Partnership?
If you are operating as a partnership, you will need to apply for an EIN. The IRS requires an EIN for all partnerships. There is no exception to this rule.
The good news is that EINs help your business accomplish many important things, including opening a bank account in the name of the business, applying for credit, business permits, and licenses, and furnishing independent contractors with the appropriate 1099 forms pursuant to federal law.
Another good reason to obtain an EIN for a partnership is privacy. Instead of providing a social security number to a contractor that services several clients, you can provide an EIN, which may help reduce your chances of identity theft, or at least reduce the likelihood of a thief accessing your personal accounts.
There are several ways to apply for an EIN, and most don’t take much time at all.
Don’t wait to secure this important tax identification number for your partnership. Not only is it required, but it will also help you along your journey of entrepreneurship.