A Federal Tax ID, also known as an Employer Identification Number (EIN) or a Taxpayer Identification Number (TIN), is an identification number assigned to your business by the IRS designed to identify your business to federal agencies. Similar to how a SSN is issued to an individual, a Fed Tax ID or EIN is issued to a business.
How do I know if I need a Federal Tax ID/EIN?
A business will need a Federal Tax ID if it has any of the following: employee(s); operates as a corporation or partnership; files an employment, excise or Alcohol, Tobacco and Firearms tax return. Basically if a business has any employees or pays any taxes, it needs a Federal Tax ID. However if the business is operated solely by the owner or a Single Member LLC, then the owner's SSN may be used and a Federal Tax ID is not needed.
Why do I need a Federal Tax ID/EIN?
You will need a Federal Tax ID/EIN in order to open a bank account, apply for credit, fill out W-9 forms for clients, and file your tax return. Even if you don't need one, most business advisers recommend you get one and use it instead of your SSN.
What business entities are available?
A sole proprietorship is the simplest form of business where one individual owns the business and is not incorporated. The business owner is personally liable for all the obligations of the business and reports business income on his or her individual tax return
An unincorporated organization with two or more members who share the obligations of the business. Partners can be individuals, corporations, trusts, estates and other partnerships. Each member reports business income on a separate tax return. Common partnership types are general partnerships and limited partnerships.
A corporation is a legal entity which exists separately from its owners. A corporation limits the owners from personal liability. Formation documents from the Secretary of State are required to choose this option.
Limited Liability Company (LLC):
A limited liability company (LLC) is a legal entity that has the option of being taxed like a partnership or individual, but shields personal assets from business debt like a corporation. Formation documents from the Secretary of State are required to choose this option.
An estate is a legal entity created as a result of a person's death that consists of their personal property. An estate pays any debts owed by the decedent and distributes the remaining assets to the identified beneficiaries.
A trust is a trust created for the primary purpose of operating or engaging in a business. It must have a business purpose and actually function as a business.
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