Do I Need an Employer Identification Number (EIN)

Do I Need an Employer Identification Number (EIN) as a sole proprietor with no employees?

As a budding entrepreneur, new to business there are a lot of questions that will weigh on your mind especially when it comes to the legal aspects of the business as no one wants a run in with the law, and this is the reason why entrepreneurs always ask this question “I am a one-person business with no employees, how important is a tax ID?”

Have it in mind that a Tax ID also known as an Employer’s Identification Number (EIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify taxpayers for tax filing and reporting purposes with respect to their businesses. These being said let me state that the major driving force of a business is to make a profit and grow which implies that your zero-man staff today could turn out to be a thousand-man staff in less than a year with the right structures, investments, and efforts.

EIN Is Vital To Company’s Finance

It is compulsory for all types of business entities such as partnerships, corporations and Limited liability companies (LLC) to use an EIN. As a business owner, you’ll need an EIN to open a business bank account, apply for business licenses and file your tax returns. It’s a good idea to apply for one as soon as you start planning your business and purchasing an EIN is completely free and easy.

The IRS mandates business owners to apply for a Tax ID in certain situations, in the event that they have employees who are a part of a retirement plan, domains, non-benefits, or plan administrators. They ought to also file if they operate as an organization or partnership, withhold charges on salary, other than pay, for a Non-occupant outsider.

However, many young entrepreneurs who have no employees are not very clear as to whether a sole proprietor needs to get an EIN. A sole proprietorship is an organization that has a sole owner not enrolled with the state as a partnership or LLC organization. This kind of business entity is affordable and generally simple to build up. Also, no documents are needed in order to set it up.

As a sole proprietor, an EIN is compulsory if you have employees, subscribed to a retirement plan, inherited an existing business that you operate as a sole proprietorship, incorporated a partnership or limited liability company, or file for bankruptcy. Although most banks may require a business to have an EIN in the cases of opening a business banking account, applying for a credit card in the name of the business, applying for business permits or furnishing independent contractors form, it is not necessary for a sole proprietor to purchase an EIN. In this case, your social security number can be used as your tax ID.

Furthermore, it is important that you take legal advice from a legal adviser within your industry so you don’t have to deal with any legal issue when you are trying to build your dream business.