The Benefits of Getting An IRS EIN Number
If you’ve been in business before, you probably understand how vital an EIN is in the business landscape. However, if you’re plunging into business for the first time, you may be wondering if getting an EIN is necessary. The truth is that an EIN – Employer Identification Number or business tax ID is an incredible tool for every business, no matter the size and type. The best part is that it’s completely free and straightforward to obtain it so that you won’t be wasting any of your time or resources.
It’s worth noting that an EIN is mandatory in some businesses for tax purposes. Such organizations include corporations, multi-member LLCs, any business type with employees, if you file for bankruptcy, and if you inherit or buy a business. But you don’t need one if you’re self-employed – you can instead use your SSN. However, some sole-proprietors choose to apply for an EIN to minimize their risk of identity theft and other tax-related purposes.
Here are the top benefits of getting an EIN, even if it isn’t required:
Filing Business Tax Returns
The primary reason for obtaining an EIN is, of course, to file tax returns and avoid penalties. An EIN is a unique ID number that makes it easier for you to file state and federal taxes annually or even quarterly based on the requirements. As mentioned earlier, some businesses must obtain an EIN to file taxes. But if you belong to this category and fail to do so, you’ll practically find yourself on the wrong side of the law, paying unnecessary penalties.
That said, be sure to research in advance and find out if you need an EIN and if you do, ensure you get one as soon as possible. This will help you to avoid the risk of paying penalties or missing tax deadlines. Also, keep in mind that every decision made in your company is directly tied to its EIN.
In a world where identity theft is the order of the day, keeping your business’s confidential information safe is necessary. Regardless of your business size, having an EIN can offer you additional identity protection. Furthermore, it can help keep your SSN private. Meaning, when customers or vendors ask for payment information, they will use your EIN, which is a great way to shield your privacy. Moreover, it’ll be difficult for attackers to break into your accounts when you keep personal monies and business finances separate.
Open Business Accounts and Apply for (build) Credit
An EIN can help you open a business account and apply for credit. While some banks allow self-employed individuals to open business accounts without an EIN, others require it. Remember that opening a business account helps separate your finances from professional finances, simplifying the process of managing and tracking your business expenses. In return, this helps boost efficiency and enable you to make coherent budgeting plans and decisions for your business.
Similarly, you can build your business credit using an EIN. The same principles used to track your personal credit with a Social Security number can apply to your business credit. Typically, most credit and lending agencies will use an Employer Identification Number to monitor your business’s credit. Having a good business credit can maintain your financial stability, lead to higher loan qualification chances and better interest rates.
Almost all businesses aim at expanding their operations in the future. To some people, expanding their businesses may include applying for a loan. It’s worth noting that an EIN is essential in all banking processes. You need it to open business savings and check accounts as well as applying for a loan. Obtaining an EIN before you start the loan application process may help you secure your loan fast without much hassle.
As a business owner, having an EIN provides an easy way to hire employees. If you already have employees or thinking of hiring, consider an EIN a vital tool because a multi-member LLC doesn’t file tax returns as the LLC. On the contrary, each employee is required to pay taxes individually using the LLC’s 1040 form. Employers often require a business EIN to create payroll, and it’s what the IRS uses to track and manage payroll taxes. Subsequently, your business will need an EIN to register the State’s workers’ taxes, such as withholding income taxes for your staff and paying for employers’ compensation.
Licenses are part of any business, no matter the location. If you’re planning to get a permit for your business, you must have an EIN. It provides the local and State authorities with the necessary information they need regarding your company. An EIN also helps verify that you have the required documentation for running a business according to the setup policies and regulations.
Build Trust with Vendors
As a startup or a small business owner, it isn’t easy to manage everything on your own when growing your organization. You, of course, need to build valuable relationships with supplies, vendors, and even partner with other businesses to attain your long-term goals. Having an EIN can help attract such third parties and builds their trust in your business. Moreover, these partners may want to know your business credit details before they eventually accept your offer. An EIN can also boost your business’s credibility and assure vendors and supplies that you will pay for the goods on time.
In today’s competitive business landscape, professionalism is the key to achieving your objectives. Small businesses need to up their game and utilize every possible advantage. Obtaining an EIN is an excellent way to give your business the weight it needs to navigate the highly competitive business corridors.
It gives your company a strong definition and solid ground so your potential partners can trust it. Furthermore, customers and distributors want to do partner with serious businesses – and this is where an EIN comes in: to give your business the gravitas it needs to flourish.
Provides More Options as an Overseas Entrepreneur
If you’re a non-U.S. citizen and don’t have an SSN, applying for an EIN can significantly boost your odds when starting a business. You can get in touch with the IRS to apply for an EIN. With an EIN, you will open your business account and even apply for a business credit card before obtaining a Social Security number. This is a perfect way to launch your business quickly and can also give you a competitive advantage.
Keeps Corporate Veil
On the same note, an EIN can help keep your corporate veil, especially if you’re a single-member LLC. Ideally, a corporate veil will protect you from being personally liable for the business’s debts and other obligations. Keeping business finances and personals monies separate will help protect you from entering the corporate veil. It will also define your business’s identity, separate from shareholders, and help establish professionalism and credibility.
Now that you know the advantages of having an EIN go ahead and apply for yours. The process of getting one is pretty simple, and the best part is that it’s absolutely free on the Internal Revenue Service website. You can also apply online, by fax, mail, or phone: for foreign applicants. All you need is to provide the required business information such as name, address, mailing, and other details.