When starting a non-sole-proprietorship business in the USA, you need to register it with the IRS to create a unique business tax ID or EIN.
What is an EIN?
An EIN (Employer Identification Number) is a nine-digit identifier that the IRS (Internal Revenue Service) issues to businesses operating in the United States. The EIN has two purposes, as it is used for both business identification and employment tax reporting.
On a loan application, however, you might see reference to a TIN, which is a catch-all phrase meaning Tax Payer Identification Number. For business loans, your TIN would be your EIN, and not your SSN (Social Security Number) or ITIN (Individual Taxpayer Identification Number) which are used on personal loan applications.
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Having an EIN is optional. However, not having one, will limit your business to certain degrees. For example, your business can’t become a partnership, a non-profit organization, a limited liability company (LLC), or an S corporation without an EIN.
Ultimately, the absence of an EIN or a DUNS Number means you will have to use your personal SSN (Social Security Number) for business identification, which can be very disadvantageous when applying for credit or loans.
Another thing to consider is that other business entities may not even provide services or open tradelines to you if your business does not have an EIN.
Reasons to Apply
There are many reasons why you need to apply for an EIN, which start from a perception of legitimacy, to establishing tradelines, obtaining credit, getting a business loan, hiring a workforce, or setting up a pension plan.
- You want your business to be shown as being legitimate on the IRS website
- You want your business to become a corporation, LLC, or partnership
- You want to have a tax-deferred pension, such as a Keogh plan
- You want to file employment, alcohol, tobacco, or firearms tax returns
- You want to hire a full-time workforce
- You want to withhold income tax to a non-resident alien employee
When to Apply
When do you need to apply for EIN? The IRS leaves the decision up to the business owner as to when they want their EIN issued. Generally, you’ll want an EIN as soon as you want to do business or want to apply for business credit.
An exception for not filing for an EIN quickly is if you are NOT planning on doing business any time soon and simply wanted to register your business name before someone else does.
After filing, look for credit lenders who only require EIN for business credit, such as the Brex Company.
When applying for business credit, using an EIN (Employment Identification Number) is preferable your personal SSN (Social Security Number) instead.
When using your EIN, you won’t be personal liability over the credit incurred by your business. So, if your business fails, creditors can’t touch the money stored in your personal bank accounts, just business accounts, should you lose the ability to pay for credit obtained with your EIN.