WHEN DOES A SOLE OWNER NEED AN EIN? #3
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There are situations where an EIN number (Employer Identification Number) is legally required for a sole proprietor and situations where an EIN is suggested but not legally necessary.
If your sole proprietorship needs an EIN, it is an incredible opportunity to research choosing between a sole proprietorship vs a LLC.
Per the IRS, "A sole proprietor without employees and who doesn't record any excise or pension plan tax returns doesn't require an EIN." When you recruit employees or document excise or pension plan tax returns, you will quickly require an EIN.
A sole proprietor with an existing EIN who becomes a sole owner of a limited liability company (LLC) will require one more EIN for the LLC.
Do I Need an EIN for a Sole Proprietorship?
If you don't have employees or need to document excise or pension plan tax returns, then you aren't required to have an EIN but you could require one for various purposes. Banking, business credit, and assurance are three authentic concerns while deciding the decision about whether to get an EIN for your sole proprietorship.
As a Sole Proprietor, is My EIN Associated with My SSN?
As a sole proprietor, your EIN is not associated with your SSN. This is another benefit of getting an EIN regardless of whether you aren't required to do as such. For a full list of the benefits of getting an EIN, see our EIN benefit guide.
Is Sole Proprietorship Still the Best Decision for My Business?
If your sole proprietorship is enormous enough or successful enough to recruit employees, then you could be in the position to consider changing over your sole proprietorship into a LLC. Forming a LLC is the accompanying stage in growing a business.
While being a sole proprietor can be an easy decision to run a business with extraordinarily low profit and for the most part safe, you have zero liability insurance.
There are many benefits to holding your business in a LLC, but the most impactful is liability security. A LLC separates the business owner's personal assets from the business. This means your personal assets aren't in risk in the event that the business is sued or can't pay a commitment.
You can figure out ways to form an LLC in this guide.
Why Get an EIN if It's Not Required?
There are several valid reasons for getting an EIN regardless of whether the IRS says it's not required:
If you start your business without an EIN or employees, but end up ready to recruit an employee, you will as of now have an EIN.
Applying for an EIN instead of using your Social Security number (SSN) will keep your SSN more hidden and reduce the risk of identity burglary.
Most banks require an EIN to start a business banking account. A business bank account is another strategy for keeping your personal finances and professional finances separate.
Just as a Social Security number tracks your personal credit, the advancing and credit agencies use the EIN to follow your business' credit.
Although an EIN is not required to apply for all business loans, a lot of lenders favor a company that has established its business credit through a business bank account.
Instructions to GET A FREE EIN FOR YOUR SOLE PROPRIETORSHIP
The quickest and simplest way for taxpayers to get a free EIN is to apply online on the IRS website using the EIN Assistant.