Q: What is an EIN Number and why does a new corporation need one?
A: An Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States. It’s also known as a Federal Tax Identification Number. Here’s why a new corporation needs an EIN and what it entails:
What is an EIN Number?
An EIN is essentially a Social Security number for your business. It is used to identify a business entity for tax purposes and is required for various business activities. The IRS assigns EINs to track the tax responsibilities of different business entities.
Why Does a New Corporation Need an EIN?
Tax Reporting and Filing:
- Federal Taxes: Corporations must report their income, expenses, and other financial information to the IRS. An EIN is required to file federal tax returns, including corporate income taxes.
- State Taxes: Many states also require an EIN for state tax filings, including income tax, sales tax, and payroll taxes.
Opening a Business Bank Account:
- Banks typically require an EIN to open a business bank account. Having a separate business account helps manage finances and keep personal and business expenses distinct.
Hiring Employees:
- If your corporation plans to hire employees, you’ll need an EIN to set up payroll, withhold and remit payroll taxes, and report employee earnings to the IRS.
Applying for Business Licenses and Permits:
- Many local, state, and federal agencies require an EIN when applying for business licenses and permits.
Establishing Business Credit:
- An EIN is necessary for establishing business credit and applying for business loans or lines of credit. It helps build a credit profile separate from the owner’s personal credit.
Filing for S Corporation Election:
- If your corporation elects to be treated as an S Corporation for tax purposes, you’ll need an EIN to file IRS Form 2553.
Maintaining Corporate Compliance:
- EINs are often required for various compliance filings, including annual reports and information returns.
How to Obtain an EIN
Obtaining an EIN is a straightforward process. You can apply for an EIN through the IRS using one of the following methods:
- Online Application: The fastest way to obtain an EIN is by applying online through the IRS website. Once the application is completed, the EIN is issued immediately.
- Mail or Fax: You can also apply by mailing or faxing Form SS-4, Application for Employer Identification Number, to the IRS. Processing times are longer compared to the online application.
- Telephone Application: International applicants can apply for an EIN by calling the IRS.
Conclusion
An EIN is essential for a new corporation to operate legally and efficiently. It enables the corporation to comply with tax regulations, manage finances, hire employees, and conduct various business activities. By understanding the importance of an EIN and the process for obtaining one, new corporations can ensure they are set up for success from the start.