An EIN can provide a variety of benefits to your LLC, from opening a business bank account to protecting your privacy.
Find out more about EIN
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by Carter Giegerich
Carter is an award-winning political journalist based in Western North Carolina with a background reporting on l...
Updated on: September 23, 2024 · 7 min read
The Internal Revenue Service uses an employer identification number (EIN) or federal tax ID number to identify business entities or a small business owner. While a limited liability company (LLC) will typically need an EIN, there are some exceptions.
Multi member LLCs are required as a business entity to use an EIN to file taxes, but sole proprietors and single-member LLCs are not and can use their owner's personal Social Security number instead.
Still, many owners of business licenses prefer to apply for an EIN online, even if they're not required. EINs offer an array of tax options and financial advantages. Here's how you can discover if you need an EIN.
All multiple-member LLCs (or LLCs with more than one owner) require an EIN as a business entity, regardless of whether the small business will pay taxes as a partnership or a corporation.
But unless a small business or single-member LLC elects to file taxes as a corporation, the IRS treats it as a disregarded entity. This means that the LLC's income is treated as the owner's income for federal income tax purposes. So if you are the sole owner of an LLC, you can pay income taxes on your business through your SSN. Knowing this information, you may be wondering if your single-member LLC will need an EIN, aka a federal tax identification number.
Disregarded business entities do not have to use a federal employer identification number (EIN) for any reporting or filings required for income tax purposes. It can use either the owner's SSN or EIN. This is the case even if you have obtained an EIN for your LLC. A disregarded entity is not required to obtain an EIN unless it has:
If you make any changes that result in your LLC not being classified as a disregarded entity, you will need to apply for an EIN. For example, you will need an EIN if you add a member (i.e., a new owner) to your LLC and it's no longer a single-member organization.
Depending on the size, structure, and operations of your business, you may be legally obligated to register an EIN. An EIN isn’t always necessary when your business is first starting out, but you’ll usually need to register for one once it starts to grow and develop long-term goals.Our complete guide to EINs can help you determine if and when you should apply.
Even if you're not required to obtain an EIN, your LLC will benefit from one. An EIN will promote the long-term growth of your business. For example, most banks request an EIN if you want to open a business bank account or business credit card under your LLC name. Having an LLC with an EIN will help to keep your business finances separate. It also protects your privacy by keeping your SSN out of business matters and allows you to hire employees. Inquire with your local bank to decide if you need an EIN to hold a business bank account with them.
Not all LLCs need an EIN immediately. Some owners run on a small scale tied to their SSN while forming their business plan. This saves time and paperwork if they haven't settled on long-term goals. When your business is this small, there is no need to run to the bank to open a business checking account. But once you're ready to take the next step, you can apply for an EIN even though the IRS does not require you to have one.
Do you need an EIN or SSN to file taxes? Assuming your LLC doesn't have employees or excise tax liability, you're free to file taxes with an SSN or EIN as a business entity. Before committing to one tax ID or the other, consider the pros and cons of each option before filing business taxes.
While most businesses file with an EIN, there are a few advantages to paying taxes through an SSN:
EINs are popular thanks to the wide range of benefits they offer:
You can weigh the pros and cons of using either situation to decide if your business does indeed need an EIN.
Applying for an EIN is an easy process with no fees involved. LLCs have two application methods:
Approval times can vary depending on how you file your application. Online applications are processed almost immediately, whereas printed applications mailed in to the IRS can take up to four weeks to be approved.
Once the IRS sends your EIN, save the documents it's listed on. From here, plan on incorporating it into your future business plans.
If you intend to file taxes with your EIN, meet with an adviser who can point out the best savings and deductibles.
Whether you're required to get an EIN, the nine-digit number assigned by the IRS, or need one for a non-IRS-related reason, applying for an EIN for your LLC is easy and presents financial advantages.
No, LLC and EIN aren't interchangeable. LLC refers to a type of company, and EINs are tax IDs that apply to LLCs and other business models.
Getting an EIN comes with an array of benefits for a sole proprietorship. EINs grant privacy, access to tax deductions, and more options for opening a business bank account.
Applying for an EIN is free through the IRS.
Registering an EIN can be done online in a single day. Other options, including registering by telephone, fax, or mail, can take anywhere from a few days to four weeks.
Yes, if you plan to hire employees now or in the future for your LLC, you will need an EIN for tax reporting purposes. If you do not have an EIN, you cannot legally pay your employees or fulfill your tax obligations for federal tax purposes as an employer.
The best way to keep your personal and business finances separate as an LLC is to open a dedicated business bank account using the EIN of your LLC. It's important to ensure that every business transaction can be tracked via your business bank account. It may be best to use the EIN to prevent any occurrences of identity theft during the life of your business.
Not every bank requires an EIN in order to apply for a business loan or business credit. However, having the EIN can help to verify the legitimacy and financial history of your business. The EIN will also distinguish your personal assets and business finances. Your EIN can possibly prevent identity theft when you don't share your SSN on sensitive business documents.
Halona Black contributed to this article.
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