Many businesses apply for an employment ID number, or EIN, for tax purposes. This number is also important for many banking and credit transactions. However, the IRS does not require all businesses to have this, making many wonder whether they need a tax ID number for my home business. The answer is it depends. The answer relies on more than whether you work out of your home or not.
Who Needs a Tax ID Number?
The requirements for an EIN are based on the structure of your business and whether you have any employees, not the location of your business. If your business is a partnership or a corporation, then you must have a home business EIN number. LLCs and sole proprietorships do not automatically need an EIN, even for home businesses. Businesses that have employees, file excise tax returns or file pensions must have a tax ID number. LLCs and sole proprietorships that do not fall under these conditions have the option to use the owner’s social security number instead of an EIN.
How Do You Get an EIN?
Even if you are not required to have an EIN for your home business, there are many benefits to having one. For one, it provides you with extra security against ID theft for your own social security number. It also makes it easier to separate your personal and business credit history. If you wonder, how to get a tax ID number, know it is simple to apply for one online through an easy application. You will receive your EIN within hours*?
*Most EINs are processed same or next business day, unless bundled with state formations, processing times will vary.
Reasons to Have an EIN
If you have a small home business with no employees and you are a sole proprietorship or a disregarded entity LLC, then you do not have to have an EIN. However, you might find that it benefits you to have one. EINs are used for more than just filing taxes; they are often required for:
Additionally, having an EIN provides you with a certain amount of protection. You will use your EIN rather than your social security number on all of your business documents and contractors requiring a tax ID number. Rather than having your social security number on multiple 1099 forms when you act as an independent contractor, you will have an EIN. Thus, you do not have to worry as much about identity theft. Furthermore, you will not have to worry about hurting your personal credit as you apply for business loans or credit cards on your EIN. In some cases, you will have to act as a guarantor of the loan, but it does not necessarily go on your personal credit report.
When to Get an EIN
For most businesses, it makes the most sense to apply for your EIN at the start of your business. You are forming the foundation of your company, and you are already filling out paperwork and forms. However, if you miss the opportunity at the start to get your EIN, you can apply for one at any time. You should not run into problems with deciding to get an EIN down the line if you are a business that had the option of filing for one.
Act as soon as possible if you find out you were supposed to have one and did not get it when you should have. When you start to hire employees or change your business structure to a partnership or corporation, then you will need to get one right away.
If you begin your home business as a sole proprietorship and later change the structure, such as form an LLC company, you will need to apply for a new EIN at that time. Simplify the process of applying for your EIN and get started by filling out this form.