Your federal Employer Identification Number (EIN) is a number that looks similar to your Social Security Number (SSN). It is a number that the federal government assigns to different businesses to be able to identify them. These numbers have to be used by businesses, partnerships, limited liability companies, and corporations. That being said, the majority of sole proprietors do not have to obtain an EIN and they can utilize their regular SSN in its place. That being said, you may still want to get yourself an EIN anyway.
An EIN Is Required For A Sole Proprietor When You:
– Hire employees
– Have a Solo 401(K) Retirement plan
– Purchase an existing business or inherit one
– Incorporate or Form an LLC
– File for bankruptcy
Some banks may require you to have a valid EIN before them setting up an account for your company.
Reasons To Get An EIN Even If It Isn’t Required
You can get yourself an EIN even if you don’t necessarily have to or you can decide to use your SSN instead. There are two very good reasons to consider getting and using an EIN instead.
1. Avoid Identity Theft
First and foremost, the ability to not expose your SSN cannot be understated. Theft of the identities of taxpayers has become a very big issue. There are more identity thieves than ever before and they steal SSNs to do things like file fraudulent tax returns and to steal refunds. Because of this, you want to avoid using your SSN whenever possible.
If you are an independent contractor and you perform personal services as such, you will need to supply either an SSN or an EIN to your clients to have them withhold payments for tax reasons.
Getting an EIN will give you the ability to avoid putting your SSN at risk and exposing it to clients. Instead, you will be able to use your business’ EIN which is much easier and less risky.
2. Showcase You Are A Contractor
By getting an EIN and using it on your returns and payments, you will be able to showcase yourself as a contractor. This can make it much more attractive to clients to hire you for jobs.
How To Get An EIN
Getting an EIN is not only incredibly easy, but it’s also free. You can easily apply for one directly on the IRS’ website. They have an assistant tool that will walk you through the process step by step. If you don’t want to use the Internet to send this important information, you could download the needed EIN forms and send them through registered postal mail. You can also get one by calling the IRS at 800-829-4933.