Reasons Why Your Small Business Needs an Employee Identification Number
Entrepreneurs often shrug off the idea of obtaining an employee identification number, or EIN, believing that their small business really doesn’t need one. Though there are some cases where a solo business can get away with merely utilizing the business owner’s Social Security Number, doing so is not necessarily the best idea, even if you don’t have plans to hire employees in the future. In almost all instances, having an EIN is a good idea. It provides many benefits that go beyond facilitating the payment of employees.
Using an EIN Instead of Your Social Security Number Protects Your Personal Information
One of the top benefits offered by an Employee Identification Number is that it can help protect your personal identity. Though you still need to protect your EIN and shouldn’t share it without being certain of how it will be applied, using it for your business means that your personal information will have less exposure. Government forms and documents require an identifier, and the EIN (which is issued by the IRS) can be used on all of these instead of the Social Security Number. Though you can still suffer significant damage if your EIN is stolen, the information that is limited to your business is less sensitive than the information that is connected with your Social Security Number. Both require vigilant protection.
If You’re Going to Incorporate, You Need an EIN
Immediately incorporating your business makes it into a separate entity, and as such, it needs its own form of identification, especially if you’re going to have employees. Even if you’re considering yourself an employee, you will need to pay yourself a salary, and that means that you will need to collect payroll tax and take other steps that keep you in step with the IRS requirements. This is true whether your entity is established as a corporation, an LLC, and especially as a partnership, as you can’t use two Social Security numbers for filing financial papers.
The EIN Has Multiple Applications
Having an Employer Identification Number has long-term benefits that go far beyond its initial issuance. In addition to facilitating payroll, it can also be used to apply for all types of credit accounts and bank accounts needed by entities including general partnerships, LLCs, S corporations and sole proprietorships. You’ll need to have that number available for filing to change your business’ entity, for filing your tax returns every year, for setting up financial instruments such as profit-sharing plans, pensions, and retirement plans, and more.
Every business is different, and though we encourage all business owners to give serious consideration to obtaining an Employer Identification Number, we know that it may not apply to your situation. Please call this office if have questions related to an Employer Identification Number and your particular circumstances.