Tax Tuesday

How To Get A Small Business Tax ID Number

Photo by Priscilla Du Preez on Unsplash

After venturing into some more esoteric tax debates, let’s talk about something much more practical: getting a Tax ID for your small business.

After over a year of COVID sending the world down new, unprecedented paths, one of the side consequences has been a surge of people creating new businesses. With those new businesses comes a surge of new questions, including small things, like how to get a small business tax ID number.

The short answer to that one? Head over to the IRS’s website and fill out the online form to receive an Employer Identification Number, or EIN for short.

Before you do that, though, there are a few things you might want to consider.

Why Do You Need A Small Business Tax ID Number

In my many years working with people just starting their businesses, this small business Tax ID number (or EIN) comes up quite a bit. They’ll hear they need it, so they try to get one.

But do you really need one?

Maybe not.

If you are starting a business where you are the only person in the organization, where you have no payroll or other complex form filing requirements, the answer may be no.

For those who decided to get up and start working for yourself without caring about complex things like organization, for income tax purposes you’ll be filing what’s called a Schedule C, which is part of your 1040 income tax filing. That Schedule C asks if you have an EIN, but it clearly states that it is optional. You can use your Social Security Number instead.

Even if you form an LLC and you’re the only person in the organization, you still may not need that Employer Identification Number. This type of organization is called a Single Member LLC, and for Federal Tax purposes, it is the same as if you have no organization at all.

[If you want to see why you would want to have a Single Member LLC, check out my guide]

When your organization starts to grow from just you, then yes, you will need that small business Tax ID number. But if you’re small, and you plan to remain small, it’s typically not needed.

Where the Small Business Tax ID Number May Still Be Required

For most people, the first reason they want to get that Small Business Tax ID (EIN) is because the bank wants it. If you are trying to set up a bank account for your business, most banks will demand an EIN so they can link that bank account to something they can send to the IRS.

You could potentially get around this, though. Some banks or credit unions will work with you by allowing you to set up an account purely in your name, and you can run the business expenses through there.

You COULD also just use your standard personal bank account and intermingle personal and business expenses, but I would HIGHLY DISCOURAGE this, especially if you have more than just a handful of transactions throughout the year.

Another Potential Benefit of a Tax ID

If you’re still not required to get that small business tax ID number due to the organization, employee, or banking requirements, you still MIGHT want to get an EIN for a simple practical reason: you can give that number to your clients if it is required.

Due to changes made in the Affordable Care Act, most businesses must report amounts over $600 paid to non-corporate providers to the IRS. To report that amount, they will need to have some sort of identification number.

If you do not have that small business Tax ID (EIN), then they’ll need your Social Security Number to fill out that report. Which theoretically isn’t an issue, but many people (rightfully) get squeamish handing out their SSN due to all the potential security risks.

Do You Need a Social Security Number to get an EIN?

The IRS needs a “responsible party” to link up with the small business tax ID (EIN). When you file this online, you will need a Social Security Number or Individual Tax Identification Number (ITIN).

However, that doesn’t mean you need to have one of those two to get an small business tax ID. If you do not have one of those numbers, you can do a paper application ( found here).

Cost

Getting a small business tax ID is free. Don’t trust anyone trying to charge you to get it.

Print Out Your Small Business Tax ID

If you file for an EIN online, you will get a number right away. MAKE SURE TO PRINT IT OUT. Unless you specifically request the IRS to send you the number when you’re filling out the original form, you will not get this number again. And if you do not have it, retrieving it later is likely impossible.

Try my free, 6 day mini course on putting together your independent entrepreneurial venture. Sign up for it here!

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Accountant, Professor, Entrepreneur. Loving my household of struggles (seizures, anxiety, dysautonomia, autism, dysgraphia) while training a poodle service dog

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Tim Gordon

Tim Gordon

Accountant, Professor, Entrepreneur. Loving my household of struggles (seizures, anxiety, dysautonomia, autism, dysgraphia) while training a poodle service dog

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