An Employer Identification Number (EIN) is a type of Tax Identification Number (TIN).
There are many kinds of TINs, including Social Security Numbers (SSNs). An EIN is like a SSN but is used to identify entities rather than individuals. Like a SSN, an EIN is a nine-digit number but is formatted as XX-XXXXXXX. This number will be required for various forms and applications, so it is important to keep a record of it in an accessible and safe place.
The IRS requires any business entity that employs individuals, regardless of the size of the business, to have an EIN. A business entity only needs one EIN regardless of how many trade names it has. Nonprofit entities also need an EIN to file Forms 1023 (application for recognition of tax exemption) and 990 (informational tax form). Trusts must have an EIN because they file their own tax returns. Estates may need an EIN if the assets that become part of the estate generate income, like rental properties, bonds, stocks, etc.
Entities generally need an EIN to open a bank account, apply for credit, apply for a business license, and file tax returns. Any business that operates in Virginia must first register in Virginia and needs an EIN to register. Therefore, even if the IRS does not specifically require your entity to file for an EIN, it may be beneficial to get one. Getting an EIN may help prevent identity theft because it allows you to separate personal finances from business finances. After receiving an EIN, you can provide the EIN to the people with whom you do business rather than providing your personal SSN. There is no harm in getting an EIN and then never using it, especially because the IRS does not charge a fee to apply.
How to Apply
You should apply for an EIN soon after your entity is created. The IRS allows applicants to apply online or to mail or fax Form SS-4. The IRS encourages applicants to apply online. This option is available for all entities whose principal business or office is in the United States. Applicants who apply online will receive an EIN immediately. If an applicant’s fax number is provided on the faxed SS-4, then the IRS will send the EIN via fax within four business days. The IRS processes mailed applications much slower and will mail the EIN back in about four weeks.
The Application
Form SS-4 is relatively straightforward but has a few confusing parts. First, you will need to include the legal name of the entity and the entity’s mailing address. If applying online, the IRS systems can only process certain characters in a business name, including:
Alpha characters (A-Z),
Numeric characters (0-9),
Hyphens (-), and
Ampersands (&).
The IRS suggests that if your entity’s legal name includes backward or forward slashes, you should substitute a hyphen for the slash. If your entity’s name contains an apostrophe, drop the apostrophe, and leave no space where the apostrophe used to be. If the name contains any other symbol or character, you should either spell out the symbol or drop the symbol and leave a space where the symbol used to be. For example, if the entity’s name is “John.Com,” you can either write it as “John Dot Com” or “John Com.”
Additionally, the IRS online application system only allows 35 characters on the street address line for mailing addresses. If the address does not fit within 35 characters, the IRS recommends that you provide the most essential address information, like apartment and suite numbers. The IRS will then validate the information with the United States Postal Service to receive the most complete address possible.
The application also asks for the name and social security number of the “responsible party.” The responsible party is the person who ultimately owns or controls the entity or who exercises ultimate control over the entity. It is usually the principal officer of corporations, the executor of an estate, or the settlor (creator) of a trust. The IRS recently limited the number of EINs that a responsible party can receive each day to one. Therefore, if you were the responsible party for a new business and a new trust that both need EINs, you would have to apply for their EINs on separate days.
EINs for LLCs
Another part of Form SS-4 requires that applicants select the type of entity that is applying for an EIN. This section can be confusing for LLCs. Line 8 specifically asks whether the applying entity is an LLC, but line 9, which requires the applicant to check a box about what type of entity is applying, does not list an LLC as an option. Therefore, if an LLC is going to be taxed as a partnership, it should check the “partnership” box for Line 9. If the LLC will be taxed as a corporation, it should check the “corporation” box. If the LCC has only one member, then it should check “other” and write “disregarded entity.”
The application also asks the entity to list the closing month of its accounting year, which is usually December, the expected number of employees during the first year of business, the first date that any wages were paid, and the principal activity of the business.
The very end of Form SS-4 provides a place to list the name and contact information of a third-party designee. A third-party designee is someone you authorize to answer questions about the application and to receive the EIN on your behalf. Typically, you will need to fill this section out if an attorney, accountant, or other third party is filing the SS-4 on behalf of the entity.
Davis Law Group Can Help
If you have any questions about getting an EIN, or prefer an attorney to file the SS-4 on behalf of your entity, contact our office today. Our experienced business attorneys can help you ensure your business is set up correctly, filing taxes correctly and on the path to success. Contact us today.
How and Why You Should Acquire an EIN
An Employer Identification Number (EIN) is a type of Tax Identification Number (TIN).
There are many kinds of TINs, including Social Security Numbers (SSNs). An EIN is like a SSN but is used to identify entities rather than individuals. Like a SSN, an EIN is a nine-digit number but is formatted as XX-XXXXXXX. This number will be required for various forms and applications, so it is important to keep a record of it in an accessible and safe place.
The IRS requires any business entity that employs individuals, regardless of the size of the business, to have an EIN. A business entity only needs one EIN regardless of how many trade names it has. Nonprofit entities also need an EIN to file Forms 1023 (application for recognition of tax exemption) and 990 (informational tax form). Trusts must have an EIN because they file their own tax returns. Estates may need an EIN if the assets that become part of the estate generate income, like rental properties, bonds, stocks, etc.
Entities generally need an EIN to open a bank account, apply for credit, apply for a business license, and file tax returns. Any business that operates in Virginia must first register in Virginia and needs an EIN to register. Therefore, even if the IRS does not specifically require your entity to file for an EIN, it may be beneficial to get one. Getting an EIN may help prevent identity theft because it allows you to separate personal finances from business finances. After receiving an EIN, you can provide the EIN to the people with whom you do business rather than providing your personal SSN. There is no harm in getting an EIN and then never using it, especially because the IRS does not charge a fee to apply.
How to Apply
You should apply for an EIN soon after your entity is created. The IRS allows applicants to apply online or to mail or fax Form SS-4. The IRS encourages applicants to apply online. This option is available for all entities whose principal business or office is in the United States. Applicants who apply online will receive an EIN immediately. If an applicant’s fax number is provided on the faxed SS-4, then the IRS will send the EIN via fax within four business days. The IRS processes mailed applications much slower and will mail the EIN back in about four weeks.
The Application
Form SS-4 is relatively straightforward but has a few confusing parts. First, you will need to include the legal name of the entity and the entity’s mailing address. If applying online, the IRS systems can only process certain characters in a business name, including:
The IRS suggests that if your entity’s legal name includes backward or forward slashes, you should substitute a hyphen for the slash. If your entity’s name contains an apostrophe, drop the apostrophe, and leave no space where the apostrophe used to be. If the name contains any other symbol or character, you should either spell out the symbol or drop the symbol and leave a space where the symbol used to be. For example, if the entity’s name is “John.Com,” you can either write it as “John Dot Com” or “John Com.”
Additionally, the IRS online application system only allows 35 characters on the street address line for mailing addresses. If the address does not fit within 35 characters, the IRS recommends that you provide the most essential address information, like apartment and suite numbers. The IRS will then validate the information with the United States Postal Service to receive the most complete address possible.
The application also asks for the name and social security number of the “responsible party.” The responsible party is the person who ultimately owns or controls the entity or who exercises ultimate control over the entity. It is usually the principal officer of corporations, the executor of an estate, or the settlor (creator) of a trust. The IRS recently limited the number of EINs that a responsible party can receive each day to one. Therefore, if you were the responsible party for a new business and a new trust that both need EINs, you would have to apply for their EINs on separate days.
EINs for LLCs
Another part of Form SS-4 requires that applicants select the type of entity that is applying for an EIN. This section can be confusing for LLCs. Line 8 specifically asks whether the applying entity is an LLC, but line 9, which requires the applicant to check a box about what type of entity is applying, does not list an LLC as an option. Therefore, if an LLC is going to be taxed as a partnership, it should check the “partnership” box for Line 9. If the LLC will be taxed as a corporation, it should check the “corporation” box. If the LCC has only one member, then it should check “other” and write “disregarded entity.”
The application also asks the entity to list the closing month of its accounting year, which is usually December, the expected number of employees during the first year of business, the first date that any wages were paid, and the principal activity of the business.
The very end of Form SS-4 provides a place to list the name and contact information of a third-party designee. A third-party designee is someone you authorize to answer questions about the application and to receive the EIN on your behalf. Typically, you will need to fill this section out if an attorney, accountant, or other third party is filing the SS-4 on behalf of the entity.
Davis Law Group Can Help
If you have any questions about getting an EIN, or prefer an attorney to file the SS-4 on behalf of your entity, contact our office today. Our experienced business attorneys can help you ensure your business is set up correctly, filing taxes correctly and on the path to success. Contact us today.
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