Does a Small Company Need a Tax ID Number?

Depending on a specific set of circumstances, small business owners can file their taxes using either a Social Security number or an Employer Identification Number (EIN). Not all small business owners are required to apply for an employer ID numbers. The following are conditions that might make it necessary for you to have an EIN:

  • The business is designated as a corporation, partnership or limited liability company.
  • There are employees.
  • You want to save money in a 401K or a Keogh.
  • You want to withhold taxes on income, other than wages paid to a non-resident alien.
  • You are required to pay excise taxes on tobacco, alcohol or firearms.
  • Your business is involved with operating a trust or a non-profit or one of the other types of organization that the IRS has identified as needing to file with an EIN.

If you did not answer any of these questions affirmatively, then you can probably operate your business as a sole proprietorship and use your own Social Security number to file your taxes. However, there are a number of reasons why you might want to apply for an EIN. An EIN is easy to get and it costs nothing. Used on business documents and payments, the number identifies you as a business owner and not an employee. This may be advantageous with clients or customers. Also, having an alternate number to use as a tax ID allows you to keep your personal social security number private. This could help to protect you from identity theft. An EIN may be necessary to secure a business bank account or to apply for credit. You may also need the EIN to apply for certain permits and licenses.

Reasons to Have an EIN

Even if you do not need to apply for an EIN, it is to your benefit to do so. You will find that you use your EIN for:

  • Taxes
  • Banking
  • Credit cards
  • Loans
  • Business permits
  • Business licenses
  • Contracts

There might be other reasons for which you will need to use an EIN. Although you might find that in some of these circumstances you can use your social security number rather than an EIN as a business not required to have an EIN, it still remains a good idea to have. You will be better protected if you use a separate identification number for you business than your personal finances and taxes.

Circumstances Requiring a New EIN

For the most part, your business will have the same EIN for the life of the business. However, there are some circumstances where you will need to apply for a new one:

  • Change the business entity (e.g. moving from a sole proprietorship to a partnership)
  • Business ownership changes
  • A new charter from the Secretary of State for your corporation
  • A statutory merger creates a new corporation

There might be other reasons for which you will need a new EIN. However, if you simply forget the number or cannot find the paperwork that details your number, you do not want to apply for a new one. Instead, you will need to find your original EIN or request for the IRS to send you a copy of your original paperwork with the number on it.

Ultimately, the size of your business is not the reason for why you need an EIN; it is the business structure and whether you have employees. Even if you have just one employee or pay an independent contractor more than $600 per year, you will need to have an EIN. You might find it to your benefit to have one even when not required by law.

You can apply for an EIN with GovDocFiling here or contact us here ensure that you choose the option that will benefit you.