What is it and How to you Get One for Your Startup?

EIN – What is it and How to You Get One for Your Startup?

Launching a business as a new entrepreneur is an exciting endeavor. While incredibly inspiring, it is also a venture that comes with plenty of challenges, questions, and of course, official paperwork and processes that must be followed in order to ensure legality and compliance.  Ultimately, it can be hard for any would-be business owner to know just how to get their startup off the ground, no matter if they are wondering how to form an LLC in California or an S corporation in Virginia.

In this article, we will cover one of the very first things you must do when starting your new company—get an Employer Identification Number (EIN). It is our goal to outline just what an EIN is and how you go about getting one for your startup organization.

What is an EIN?

A key responsibility of any startup owner is to go about obtaining an EIN from the Internal Revenue Service (IRS). Essentially, an EIN is a Social Security number used by your business. It is a unique nine-digit identifier that the IRS issues to your company for tax purposes. Moreover, an EIN is not only used by the IRS, but it is also used when interacting with financial institutions, such as banks as well as other key entities.

An EIN is absolutely necessary for conducting a variety of business activities, including hiring employees, opening a business bank account, applying for a business license, obtaining a business loan, and filing tax returns.

What Types of Companies Need an EIN?

What Types of Companies Need an EIN?

It is common to think that a startup business might be able to simply operate with the owner’s Social Security number and believe that EINs are only associated with large corporations. However, that is a misconception. Here is a helpful list of the types of companies that must get an EIN for tax reasons:

  •  Any type of startup that plans on hiring employees either now or in the future.
  • Corporations as well as any business entity that is taxed as a corporation.
  • LLCs that have multiple members/owners.

If you are a sole proprietor or a freelancer, it is likely that you do not need to get an EIN. However, having an EIN does have plenty of benefits, including:

  • Enables a startup business owner to separate personal finances from business finances—this simplifies accounting and bookkeeping while also limiting liability in the case of a lawsuit or other business issue.
  •  Allows for the filing of business taxes and the avoidance of tax penalties.
  • Minimizes the chance of being audited by the IRS for taking certain deductions, such as having a home office.
  • Prevents identity theft, as a business owner does not have to use their SSN when working with vendors or other business partners—instead an EIN is provided.
  • Adds credibility when finding, onboarding, and retaining clients—an EIN legitimizes a business and indicates actual operations and not a “hobby shop” of sorts.
  • Lets a startup organization open up a business bank account, which is crucial for building business credit, applying for loans, and obtaining other lines of credit.
  •  Allows for the legal hiring of employees, which can lead to business and revenue growth.
  • Provides for more options as an overseas entrepreneur. An EIN is very helpful if a startup owner is a foreign national who does not have a U.S. SSN.

Ultimately, there are many business benefits against the challenges to obtaining an EIN for a startup on day one as it can save a lot of time and headaches in the long run.

How Does a Startup Get an EIN?

Getting an EIN from the IRS is not difficult; in fact, it is relatively easy and straightforward. Here are the steps that should be followed for a startup organization:

  • Ensure eligibility. The majority of businesses are able to apply for an EIN, including LLCs, corporations, partnerships, and sole proprietorships. Other types of organizations, including foreign-owned enterprises may be an exception and there may be certain requirements to follow.
  • Gather needed information. This includes the business’s legal name, the business structure, mailing address, the reason for applying, as well as information related to the owners or responsible parties, such as names and Social Security numbers.
  • Apply. There are three ways to apply for an EIN—via mail, fax, and online. The online application is the fastest and most convenient option and allows a business owner to receive the EIN immediately. If applying via mail or fax, complete Form SS-4, which is also available on the IRS website, and send it to the appropriate address or fax number. Please note that when applying through mail or fax it could take several weeks for the new EIN to be received.

Keep Your EIN Accessible and In a Safe Place

Once you have your EIN make sure you protect it just as you would your SSN and keep it in a safe and secure environment. Note that you will want to ensure it is readily available so you can provide it when requested by a financial institution, the IRS, or other relevant parties. 

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Islah Ejaz is a real tech fanatic who has been writing for tech since 2016. His insights in tech are remarkable, as he keeps a close eye on the latest tech innovations & inventions, news, updates, and releases. Binge-watching series and listening to podcasts is what keeps him firm. He is also a gaming enthusiast, and gaming gives him the ultimate pleasure.