Identity protection, professionalism, and business growth are some of the benefits of having an EIN number
An Employer Identification Number (EIN) is an important tool every business should have. These 9-digit ID numbers separate your personal and business finances as well as provide legitimacy for your organization. For sole proprietors, the EIN may seem unnecessary, but the benefits of having one (they’re free and easy to acquire) outweigh the minimal amount of time it takes to get one.
The IRS provides EIN (sometimes called a FEIN — Federal Employer Identification Numbers) free of charge to any business owner. The application process takes less than 10 minutes and the number is assigned immediately. The IRS issues a printable copy of EIN information you can take to the bank or provide to license boards, clients, and vendors.
No matter what the size of your business, even if it’s only a part-time gig, an EIN is an important tool to have. Here’s why.
1. Identity protection
Whatever the size of your business, an EIN may offer a layer of identity protection. In a world rife with opportunities for identity theft, keeping your personal information safe is key.
Whatever the size of your business, an EIN may offer a layer of identity protection. In a world rife with opportunities for identity theft, keeping your personal information safe is key. An EIN keeps your social security number private. When vendors look for credit information, or customers ask for data to make payment, your EIN is the number they use — shielding your privacy.
Professionalism matters in today’s competitive business climate. Small businesses need to leverage every possible advantage. An EIN gives your company gravitas: this isn’t just a side hustle or a part-time hobby — this is your business. Clients and vendors are looking to do business with serious partners; the EIN shows you’re serious about your business.
3. Business taxes
Business taxes are, of course, a reason to have an EIN. The ID number makes it easier to file federal and state taxes, quarterly or annually. Some small businesses and sole proprietorships use personal accounts for their business and taxes. This creates a “pass-through” organization — money is passed through personal banking systems. For many pass-throughs, however, there may be tax benefits in separating business from personal accounts. Check with your tax professional to compare rates.
4. Separation of personal and business finances
If you have employees (or hope to in the future) an EIN is a must. Separating personal monies from business accounts is needed. You’ll have to pay payroll and Federal Insurance Contributions Act taxes to staffers, even if it’s only temporary help you hire through a business rush. The EIN allows you to make payments to state and federal agencies and assures you earn credit for the amounts paid.
If you need licenses for your business, you’ll need an EIN. These provide state and local authorities the information they need about your organization and help verify you have the credentials necessary to run your business in accordance with regulations.
6. Business growth
Business growth is the aim of all owners, and one day you may want to apply for a loan to expand. An EIN will be necessary for all banking transactions — from opening business checking and savings accounts to applying for a loan. Having the EIN in place before you’re ready to fill out loan documents (and establishing your business with a bank in advance) may help secure the funds you need to grow.
Business growth is the aim of all owners, and one day you may want to apply for a loan to expand. An EIN will be necessary for all banking transactions — from opening business checking and savings accounts to applying for a loan.
7. Establish credit
Establishing credit for your business is as important as establishing it for yourself. An EIN is required by credit card companies to create a business account. This launches a commercial credit report, which can help boost your chances of good loan rates from vendors and creditors.
8. Apply for credit, open business accounts, hire U.S. workers
If you don’t yet have a social security number, or are overseas working with American clients, an EIN can help you apply for credit, open business accounts, and even hire workers in the states. Foreign nationals doing business in the United States are also eligible to apply for EIN.
9. Plan for retirement
Retirement planning is critical for small and medium-sized businesses: while you may love your work, one day you’ll want to retire comfortably. Even the self-employed can establish Keogh or Solo 401(k) retirement plans if they have an EIN. These retirement funds may be more beneficial, tax-wise, than a personal IRA.
10. Protection of assets from business losses
On the other end of the equation is bankruptcy. You may not plan to go under, but if you do, you’ll need an EIN to assure personal assets are protected from business losses.
How to apply
Applying for an EIN from the Internal Revenue Service is free and easily done online, but you can apply by mail or fax as well. You’ll only need to provide some basic information about your business — name, mailing address, your name, etc.
The IRS site even helps you determine what type of business you have, such as a sole proprietorship or partnership. Once the information is entered, an EIN is assigned. Go directly to the IRS to apply — there’s no need for third-party assistance (some even charge a fee for this free service). Applying for an EIN takes less than 10 minutes, but will help protect your personal finances, establish credit and credibility for your organization, and help you plan for the future and growth.