An Employer Identification Number (EIN) is a nine-digit number assigned by the IRS to businesses for tax purposes. Getting an EIN can help prevent identity theft by separating personal and business finances. You don’t have to provide your Social Security number to clients or vendors. An EIN also makes it easier to open bank accounts and get business credit.
Benefits of Having an EIN
Even if you’re not legally required to have one, an EIN has benefits. It simplifies filing business taxes and establishes tax identification if you want deductions for a home office. Applying for an EIN is free and simple through the IRS website.
The EIN allows the IRS to track a business’s tax reporting and identity separate from an owner’s personal taxes. An EIN also makes it easier to open business bank accounts instead of using your personal finances.
While Social Security numbers identify individuals, EINs identify business entities for tax purposes. Most US businesses need an EIN to properly pay taxes. Sole proprietors can benefit from an EIN too by simplifying tax filing. An EIN prevents you from sharing sensitive personal finance details when doing business.
How to Get an EIN
Visit IRS.gov to learn when you need an EIN and how to get one. Some key times to get an EIN are when hiring employees, paying yourself a salary from the business, or intending tax benefits like home office deductions.
Potential Downsides
Is there a downside to getting an EIN? Applying for an EIN is free and simple through the IRS website, and an EIN helps to protect your identity and facilitate your business’s financial operations. There are few, if any, downsides to obtaining one if it is appropriate for your business situation.