Are Sole Proprietor’s Required To Have An EIN Number?

You can start a sole proprietorship at any time to manage a small business, but you may not understand the tax implications of that decision. This is a recommended practice, but you do not need to do it to remain on the right side of the law. Instead, you are making wise decisions that help you keep your business healthy. You need options, and that is why you should research the differences between an LLC and a sole proprietorship.

When Does a Sole Proprietor Need an EIN?

What Is the EIN Number?

The EIN is the Employer Identification Number. This is the number employers use to separate themselves from their owners. Why? Businesses are not people, and they need specific identifiers. You may feel this is not necessary because you opened the business so that you can do your work as a business owner. A common complaint is, “but I already have a Social Security Number.” It goes deeper than that. You need to take care of your business to ensure that you are in good financial health.

Do You Need an EIN For Your Sole Proprietorship?

This is the first thing you need to know because it dictates how you manage your business going forward. You do not need an EIN. According to the IRS, sole proprietorships that are not file excise taxes or pension taxes do not need an EIN. If you decide to hire an employee, file excise taxes, or submit taxes based on pension plan contributions, you will need an EIN. You can speak to an accountant about what is best for you because the nature of your business may dictate that you make certain decisions.

There is one small exception that you might not be aware of. If you become the primary owner of an LLC for some reason, the EIN for your sole proprietorship cannot be transferred to the LLC. Make sure you get a new one so that the IRS can tell the difference between your sole proprietorship and the LLC. Keep in mind that banking, business credit lines, or privacy concerns might point you in the direction of an EIN. An EIN allows your sole proprietorship to operate completely outside your name in all respects.

Does the IRS Attach My Social Security Number to My EIN?

No.

This is a significant benefit because it means that the IRS does not see you and your business as the same entity. You do not want tax issues for yourself or your family to become an issue for your business. Likewise, you do not want the IRS to feel that your business tax issues should become a personal matter.

Is a Sole Proprietorship A Good Option?

When you want to start a business with no employees, or just one employee, you can operate without any trouble. Your business might not expand all that much, but you need to register your business in some manner. However, your business might expand so much that you need to file as an LLC. You can make this change at any time, but you should work quickly because it takes time to change your reporting procedures and begin paying taxes with an EIN in the middle of the year or prior to filing your tax return.

What is an LLC?

An LLC is a limited liability corporation that protects you from liability against the business. Most sole proprietors do not do enough business to require liability protection, but there comes a time when you are at risk every day. When someone sues, they are suing the LLC, not you. You can also take out business insurance for your LLC because it is obviously a separate business. Your personal bank accounts, properties, and assets are now separate from the LLC.

Why Bother When the IRS Doesn’t Care?

There are a few good reasons to get an EIN and save yourself some trouble.

  • If you ever choose to hire employees, you already have an EIN
  • An EIN is safer than a Social Security Number
  • You need an EIN to get a business bank account or credit account
  • You need an EIN if you are applying for business loans or lines of credit
  • An EIN tracks your company’s credit activity

 

How Do You Get an EIN?

 

You can apply online or send a request form via fax or the postal service. All these options are free. You also need a taxpayer identification number of some kind when completing the application.

You also need to answer a few questions so that the IRS understands the nature of your request:

  • What type of business are you starting?
  • Is there more than one owner of your business?
  • Why are you completing the application?
  • Who is the principal or responsible party for the business—this is the person who receives tax documents and files tax returns

 

Can International Applicants Get an EIN?

 

When you are applying as an international entity, you can get an EIN. You will fill out Form SS-4, but you can leave the section labeled 7b blank. Make certain that all the other information on the form is correct so that you can receive your EIN and other tax documents.

What About Companies With a DBA?

When you are doing business as (DBA,) you do not necessarily need an EIN. You can get one so that your Social Security Number is not attached to the business. Having a DBA does not change the rules.

How Many EINs Can You Have as a Sole Proprietor?

A sole proprietor only gets one EIN because you are a single person. If you are registered as any other business, you can obtain as many of these identifiers as you like. This is especially helpful if different divisions of a business operate independently of one another. For example, your plumbing, HVAC, and electrical company might have an EIN for the HVAC department, one for the plumbing division, and one for the electrical team.

Do Self-Employed People Need an EIN?

No. You never need an EIN if you are self-employed, but you might want to get one to prevent identity theft. If someone has your EIN, they cannot do business as your business successfully because that sort of activity would raise eyebrows. You can also use an EIN when you get a business bank account or business credit card.

Are an EIN and a TIN the Same?

Yes. The Taxpayer Identification Number is the same as an EIN or a Social Security Number. You may come across documents that use these terms interchangeably. Remember that everything has a nine-digit number the IRS uses to track records and file reports.

What Is the FEIN, and Is It Different From an EIN?

No. They are the same, but some people prefer to refer to the EIN as FEIN. The Federal Employer Identification Number is no different, but you might be confused if you work with an accountant, lawyer, or business partner who uses this outdated terminology.

Can I Research My Own EIN?

You can do that, but you need to reach out to the IRS for help. You can request an email or letter with that information, and you should file that letter or email for future reference. If you have old tax records, you can find that information on your return. Do not keep this information in a public place or in files that are easy to access.

Can You Research the EIN of Another Business?

You can visit the Securities ad Exchange Commission or call to get more information. There is an “EDGAR” database where you can find the information you need. You must file a form that becomes part of the public record, and the agent you speak with will help you recover your needed information. This sort of information is important because you might want to see credit reports for the business.

Can You Recover Your EIN?

If you cannot find your EIN, you can call the IRS EIN Department for that information. You can reach their team at 1-800-829-4933 and recover your information. Check the IRS website to see updated service hours. If you are having trouble recovering your EIN, you should send your request in writing with identification that proves you are the owner of the business. You may also visit the closest IRS office to your location to speak with an agent. You may need to schedule an appointment to do so.

Is There A Difference Between an EIN and a DUNS Number?

The EIN is an indicator used by the IRS to keep track of a business as it pays employees and handles its taxes. That number is fairly universal, and most people have at least a passive understanding of it. The DUNS number comes from the Data Universal Numbering System. This number is offered by Dun & Bradstreet. Who is Dun & Bradstreet? They are a business analysis firm that uses the number to track business credit reports.