Sole Proprietors are self-employed individuals. Unlike an employer, who withholds money from employee paychecks to cover taxes, sole proprietors must pay these taxes independently and must pay both the employer contribution as well as the employee contribution to Social Security and Medicare. If you apply for an EIN for sole proprietorship, you can make this process easier and more efficient.
Self Employment Tax
Sole proprietor self employment tax is a term used to lump Social Security and Medicare taxes together. Typically, these taxes are estimated for the year and paid quarterly by the sole proprietor.
It can be challenging to estimate yearly taxes, but good record keeping and a separate bank account in the name of a business can make the process more manageable, especially for new business owners.
Simplified Taxes for Sole Proprietors
One of the best ways to keep good records of profits and losses is to apply for an EIN for sole proprietorship. Although sole proprietors are not legally required to have an Employer Identification Number (EIN), with it you can open a bank account in the name of the business and use the account to track all relevant profits and losses separately from your personal spending.
With an EIN you can also apply for credit in the name of the company to help grow the business. You can also use an EIN in lieu of using a Social Security Number when invoicing clients and applying for local permits or licenses.
These are just a few reasons you should apply for an EIN for sole proprietorship. Sole proprietor self employment tax can be hard to manage without separate banking accounts, but you can make it a lot easier by obtaining an EIN for your business.