Business Owners: How an EIN Protects You

Federal employer identification number (EIN) application for business ownerEach year, tens of thousands of individuals decide to take the plunge into business ownership for a myriad of reasons. Owning a business is an exciting endeavor given those who have the courage to step out on their own have the potential for more freedom in managing their time, their income, and their impact on the world around them. However, business owners face many challenges along the way, including confusion surrounding how the business should be structured and how to separate business and personal assets. One of the tools business owners can and should use to ensure they are set up for success in the long run is an Employer Identification Number or EIN.

What an Employer Identification Number is

An EIN is an identification tool for businesses operating within the United States, made available through the Internal Revenue Service. Each company with an EIN can use its assigned number instead of the business owner’s personal social security number when filing taxes, opening a bank account, or paying contractors or suppliers from the business coffers. While most business owners are aware that EINs exist, many are not sure that acquiring one is a necessity for their business needs. Here’s who is required to have an EIN, according to the IRS:

  • Any company that has workers, including contractors and salaried employees
  • Any company that operates as a corporation or a partnership
  • Any company that withholds pay for a non-resident alien for anything other than wages
  • Any company that operates a Keogh retirement plan

Although businesses that fall into the above categories are required to have an EIN in place, most other businesses, regardless of structure or size, can benefit from having one.

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Protecting Your Social Security Number

An EIN is the most powerful tool for business owners who wish to keep their personal and business financial lives separate. Instead of using a social security number, business owners can use an EIN to identify a business – and they should. An EIN is far less sensitive than an individual’s social security number when it comes to identity theft or a widespread data breach. With a social security number and other identifying information like date of birth and home address, identity thieves can wreak havoc on someone’s financial live, opening fraudulent accounts and racking up unmanageable debt. Using an EIN protects business owners from this threat because the identifier is not directly linked to an individual’s personal information.

What Businesses Can Do with an EIN

In addition to protecting an individual social security number by getting an EIN for the business, companies can do far more with an EIN when it comes to managing their business operations. For instance, most banks, credit unions, and other financial institutions require a business to have an EIN before they can establish a savings or checking account, a business line of credit, or business credit card. Similarly, lenders and investors are more likely to work with a business seeking funding when they use an EIN rather than business owners who use a social security number on applications. Paying state and local taxes requires an EIN, as does issuing 1099 forms to contractors who are not employees of the business.

How to Get an Employer Identification Number

Acquiring an EIN for your business is a relatively simple process that can be done online. First, however, business owners should have certain information handy, like the name of the business including any trade names, the mailing and street addresses, the type of business structure, number of business members, the reason for the application and when the business began operating. Business owners also need to provide details about the company’s main activities and the number of employees it expects to have over the next 12 months.

Once this information is gathered, a business owner can apply for an EIN through the IRS website, or by mailing or faxing in the IRS form SS-4. When submitted online, the turnaround time for receiving an EIN can be the same day. Mail or fax requests can take a few weeks to process, but it is well worth the wait.

Businesses across all industries, no matter the size or structure, should have an EIN in place. This identifier is required to establish business bank accounts which are helpful in separating personal and company financials, and an EIN protects the owner’s social security number and the damage that could result from identity theft.

Posted on October 9, 2017 by in Business Loans

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