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Starting a business is an exciting time. Whether you are opening a store or perhaps a company that provides a service, chances are you are going to create an LLC. But creating an LLC is a big step that may have you wondering if you need to take any additional steps, like obtaining an EIN.
The answer will depend on your specific situation, as well as the type of business you plan to open. Read on to learn more about whether or not you need an EIN for an LLC.
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What is an EIN?
Before discussing whether or not you need an EIN, it’s important to know what an EIN is. An EIN is an employer identification number for your business when it comes to tax season. This number will allow the IRS to keep track of your business and the taxes you and your employees owe.
An EIN can be compared to a social security number, but one that is for your company rather than a person. It is made up of nine digits and always appears in the following format: XX-XXXXXXX.
EINs are public information. You should not be worried or concerned about giving out your EIN when it is requested.
Are EINs Free?
Unlike your LLC, which you likely had to pay a few hundred dollars to set up, an EIN is free. You simply need to apply for one through the IRS.
Do You Need an EIN for an LLC?
Whether or not you need an EIN for your LLC depends on how many people are involved. If your LLC is just you, then you don’t need an EIN. This is because the IRS considers any money your single-person LLC makes as just personal income, meaning your social security number is what you will use for taxes.
But, if your LLC has multiple members, such as paid employees, that you keep on payroll, then you absolutely need an EIN.
There are a couple of circumstances where you may need an EIN for a single-person LLC. They are as follows:
- If you pay excise tax
- If you choose to be taxed as a corporation
Even if neither of these applies to you, remember that if you have multiple members in your LLC, you must use an EIN. Operating a multi-member LLC without an EIN is against the law.
Should You Get an EIN for Your LLC?
Maybe you have just discovered that you don’t need an EIN for your single-person LLC. But maybe you are wondering if there are benefits to having one. The reality is there are benefits to having an EIN, and they are as follows.
You Want a Business Bank Account
There are many different banking entities that have bank accounts that are beneficial to businesses. These can include credit cards with travel rewards and airport lounge access. If you want to have one of these in the name of your business, then you will need an EIN, as most banks require them to open a business bank account.
The main reason most single-person LLCs get an EIN is that it is simply easier. Vendors and business services will treat your company better and take you more seriously when you have an EIN. This is because LLCs without an EIN are generally seen as a hobby by the IRS, and many other businesses follow suit and may treat your company as such.
It Adds Protection
While an LLC already adds a bit of protection for you in the case that your business goes bankrupt in the future, having an EIN adds additional protection. An EIN allows you to keep your personal and your business finances separate, meaning if you do run into some trouble, it can help you to come out unscathed on the other side.
You Plan to Hire Contractors
Although you may not have employees, if you plan to hire contractors to do work for you in the distant or near future, an EIN is a good idea. This is because you will need to provide these contractors with a way to declare the money they received from you to the IRS.
This means if you don’t have an EIN, you will need to go through extra paperwork and may even need to provide your social security number. Because you may not know the contractors you worked with for a single project very well, this can be dangerous.
You Plan to Grow the Business
The LLC may just be you for now, but if you want to expand to have more employees in the future, then it is a good idea to just get an EIN now. This will make it easier when you do hire more employees.
Additionally, if you plan to change to a different type of business in the future, like a corporation, then it is a good idea to just grab an EIN now.
How Do You Get an EIN?
It is actually fairly simple to get an EIN for your LLC. Just follow these steps.
Step 1: Register your LLC
You cannot get an EIN for an LLC that is not yet registered. It also must be approved before you apply. Therefore you will want to complete this step before you move to the next.
Step 2: Gather Information
To apply for an EIN, you must be located in the US or in an approved US territory. You will also need your social security number and LLC registration information in order to apply.
Step 3: Fill Out the Form
The form is online and can be accessed from 7 am to 10 pm EST, Monday through Friday. You cannot save the form, so you will need to fill it out entirely in one setting. You also need to know that the form will time out after 15 minutes of inactivity, which is why it is important to gather all the information you need in advance.
Step 4: Submit
After you click submit, you should receive your EIN immediately. You can begin using your EIN from the moment it is issued.
If you aren’t comfortable using a computer, you can also download the required form from the IRS website. You fill it out by hand then either fax or mail it in. With this method, note that you will need to wait a few weeks before you receive your EIN. This can be annoying, especially if you would like to hire employees for your LLC immediately.
Can You Get an EIN Without an LLC?
There may come a time when you want an EIN but don’t have an LLC. This usually occurs when you have a sole proprietorship but don’t want to use your social security number.
Getting an EIN with a sole proprietorship lowers your chances of identity theft as well as helps make filing your taxes more simple and straightforward. Because getting an EIN is free, there isn’t really a reason not to get an EIN.
Can You Use a Sole Proprietorship EIN for Your LLC?
When you convert your sole proprietorship to an LLC, unfortunately, you will need to get a new EIN. This is because your EIN is tied to your business name. This isn’t a big deal because the process is so quick and easy, just make sure that the conversion is complete before you apply and you update any business websites with the new information.
When Do You Need a New EIN?
Maybe your business is changing its name. Or maybe it is moving to a new location. In either situation, as long as you are still operating an LLC, you do not need to obtain a new EIN.
If you are changing the structure of your business, however, you will need to take the time to obtain a new EIN. If you are unsure whether or not you need a new EIN, it’s always better to ask in advance to avoid trouble when tax time rolls around.
Final Thoughts on Do You Need an EIN Number for an LLC
Overall, getting an EIN for an LLC is simply a good idea. It not only protects your identity but it makes it easier to file taxes and change the structure of your business later. Whether you want an EIN or not, you are required to have one if you have more than one employee, therefore, if you are planning to expand your business, just grab one now.
Getting an EIN is easy, but you must have your LLC set up first. Once that is done, simply head over to the IRS website, where they can get you set up with an EIN in just a few minutes. Then, once that is done, you can begin using it immediately!
Reference Legal Explanations
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"Do You Need an EIN for an LLC?". Legal Explanations. Accessed on November 30, 2023. https://legal-explanations.com/blog/do-you-need-an-ein-for-an-llc/.
"Do You Need an EIN for an LLC?". Legal Explanations, https://legal-explanations.com/blog/do-you-need-an-ein-for-an-llc/. Accessed 30 November, 2023
Do You Need an EIN for an LLC?. Legal Explanations. Retrieved from https://legal-explanations.com/blog/do-you-need-an-ein-for-an-llc/.