If you own a small business, you probably know that getting an Employer Identification Number (EIN) is necessary. But what are the benefits of getting an EIN, and why should you care? Here are some of the great benefits of getting an EIN:
What is an EIN?
An Employer Identification Number (EIN) is a tax identification number that must be used when operating a business in the United States.
An EIN is not the same as an individual’s Social Security Number or a bank account number. The EIN should only be used by one person or business entity within your organization, and it will never be used for personal reasons or to establish credit in any way.
Benefits of Getting an EIN for Small Businesses
If you operate a small business, you probably know that obtaining an Employer Identification Number (EIN) is crucial. Here are some of the benefits of getting an EIN:
EINs are necessary for most businesses.
The EIN is a tax identification number that helps the IRS identify your business. It’s important to have an EIN because, without it, you may have trouble opening bank accounts or getting credit cards in your name.
For example, if you’re trying to open a bank account and they ask for your Social Security number but don’t provide any other way of identifying yourself as “the person” who has permission to open an account at their bank (i.e., without giving them proof), then they will ask for additional information such as your driver’s license number or passport number instead.
EINs Separate Personal and Business Liability.
An employer identification number, or EIN, is a unique numeric identifier assigned by the IRS to businesses. It’s used to separate your personal and business assets, liabilities, income, and expenses for tax purposes.
A sole proprietorship is owned by one person who is responsible for any debts that arise from the business. If you file taxes as a sole proprietor with an EIN, this means it’s easy to report your income and expenses on Schedule C of Form 1040 (PDF).
The IRS uses that information to determine how much money they need from you each quarter in terms of payroll taxes (Social Security/Medicare) and federal unemployment tax (FUTA), which go towards funding Social Security benefits as well as offering jobless benefits when workers lose their jobs due to no fault of their own.
Having an EIN Makes Opening a Bank Account Easier.
The second benefit of getting an EIN is that it helps you open a bank account. Most banks require you to have an EIN before they will open an account for your business.
This makes sense because the IRS requires that all businesses use this number when conducting any kind of transaction or contract on behalf of the company. For example, let’s say you’re hiring someone to write content for your blog or website. You’ll need to get their Social Security number and match it up with their name so that IRS can track who was paid what and by whom.
EINs Make Hiring Employees Easier.
By obtaining an EIN, you’ll have access to a new way of hiring employees without filing a separate tax return.
Rather than having to pay your employees as independent contractors or using other methods, you can now use a single check and avoid penalties for late payments and filings.
Having an EIN May Make You More Attractive to Customers.
Being able to prove your business is legitimate and registered may help you attract customers. Customers want to do business with companies they trust. Having an EIN can help build trust by proving that you are a legitimate, registered business. It also shows that you have more experience and are more established than a new company would be.
Investors may be more willing to invest in your company if it has an EIN rather than just being run under your name or someone else’s name. The Internal Revenue Service (IRS) requires all businesses to have this number so investors know not only are you a real person but also that there is some tax liability behind the investment being made into your company (or not).
You Can Get a Tax Deduction if You Don’t Have an EIN.
If you are not a sole proprietor or partnership and have been paying taxes, you can get a tax deduction for the portion of your business income that is reported on Schedule C. You must be in business for more than one year to qualify for this deduction.
If you do not have an EIN, however, you cannot claim any deductions from your business income even if it is listed on Schedule C. To claim those deductions, the IRS requires all businesses (both incorporated and unincorporated) with employees or contractors to have an Employer Identification Number (EIN) issued by the IRS so that they can track their finances as other corporations do.
Applying for an EIN is Easy and Free.
Applying for an EIN is easy, and it’s free. You can apply online, over the phone, or by mail. You must have your business name, address, and EIN ready before you begin to apply.
The IRS will assign a new nine-digit Employer Identification Number (EIN) to your company within 2 to 4 weeks once they receive your completed application with all required information included.
You Need an EIN to Open a Business Line of Credit.
You may not know this, but you need an EIN to apply for a business line of credit. An EIN is used as a unique identifier for your business when filing taxes or other paperwork with the IRS.
A business line of credit is an agreement between you and your bank that gives you access to cash in case it’s needed by your business. Banks generally offer lines of credit from $5,000-$250,000, though they can vary depending on your industry and the bank itself.
Getting an EIN for your business can be beneficial in the long run.
Getting an EIN for your business can be beneficial in the long run. It’s a good idea to get one even if you don’t think you’ll need it right away because there are several ways that having the number could make things easier later on:
- The EIN separates personal and business liability. If one person owns the company, they will still be responsible for any debts or lawsuits regarding it, but if multiple people own the company (which is common), then each owner is only responsible for their share of the debt.
- Having an EIN makes opening a bank account much easier than without one. Banks require that businesses get an EIN before they open an account with them so this may be something you’ll want to do regardless of whether or not your current bank asks for one when they open an account with them.
- Having an EIN means hiring employees also becomes simpler since employers will have no problem giving employees W-2 forms at tax time as long as they have been properly set up on payroll software first.
- Lastly, having an EIN can help increase customer confidence because some customers may not trust doing business with someone who has no formal legal entity behind them; however, once this barrier is overcome than many customers will feel more comfortable about buying products/services from them because now there is proof that someone does exist behind these companies’ names!
We know that it can be difficult for small business owners to keep up with all of the paperwork and requirements that come with running a company.
That’s why Micaguru Formation has attracted many clients by helping them get their EINs quickly and easily. Our team is here to help you navigate through this process smoothly and without any hassle so that you can focus on what matters, growing your business!