EIN, the Social Security Number of a Business

Whether you are starting a business or you are looking at changing the structure of your existing business, it is important to understand what an Employer Identification Number (EIN sometimes FTIN*) is and whether you need one or not.

The EIN is the way that the federal government identifies your business, making it a lot like a Social Security Number (SSN) for your business. In fact, if you are a sole proprietor any income reported to the EIN is matched by the IRS to your SSN. Because the EIN acts as a business’s SSN, it is requested and made available to many more people than your SSN would be (such as anyone that you perform a service for that is over $600). Because of this, we always recommend that you obtain an EIN number, even if you are not required to, as it reduces the opportunity for personal identity theft.

The nice thing about EIN’s is that they are free to apply for (HERE) and you can receive them the same day you apply. While you can do the application on your own, if you are not familiar with some of the language, it may be daunting. Also, if you select certain options you may make yourself responsible for form and tax returns that do not apply to you, causing an unwanted headache down the line.

When You Need an EIN

  • You need/want one or more bank accounts dedicated to your business (we always recommend this)
  • You have employees
  • You file federal taxes other than form 1040
  • You had to create an estate for a deceased loved one
  • You start a non-profit organization
  • … and more

When You Need a New EIN

  • You change the structure of your business from being a sole proprietor to:
    • LLC being taxed as a partnership/s-corp/c-corp
    • Corporation
    • Partnership
  • You change the structure of your business from being a corporation to:
    • Sole Proprietor
    • Partnership
  • You change the structure of your business from being a partnership to:
    • Sole Proprietor
    • Corporation

These are the most common reasons and not exhaustive lists, if you have a unique scenario please contact us for more information.

*Federal Tax ID Number

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