Do I need an EIN?



I'm often asked at what point do I get an EIN? (Employer Identification Number, sometimes called TIN; Tax Identification Number) The answer is; it depends. Pretty clear, isn't it. :)


I say "it depends" because if you are an incorporated business such as an LLC, Corporation, Partnership, Non-profit, etc. you are legally required to obtain an EIN. If you are not incorporated, you are not legally required to obtain an EIN. What do I mean by not incorporated? If you are operating as a Sole-proprietor, you are not an incorporated entity.


So you Sole-props out there have the choice as to when to obtain an EIN. There isn't very many pros vs. cons to it, but lets take a look:


PRO:

You do not have to give your social security number out to clients or anywhere else that a EIN/SSN would be required, which is basically just with your clients.


When you open your business bank account, they will need the EIN for the account, but you are still legally required to give them your SSN.


CON:

When you decide to incorporate you will have to file for a new EIN.


Filing for a new EIN really is not a big deal at all. It's free and takes less than 5 minutes. Once you have the new number you can write up a brief letter to inform your clients of the new number and any vendors you use. I did start as a sole-prop and did the exact same thing. I also completed a new 1099 for my clients and sent that with the email so they did not have to do anything on their end. Well other than file away the new 1099. I didn't want them to have to worry about sending me the 1099 to complete, waiting for me to email it back, follow ups, etc. I took care of it all to make it as seamless as I had the control to do.


You will have to update your bank account with the new EIN and you may or may not have to open a new account. I say may because the proper procedure is to close the old account to ensure there is a clear separation of the two businesses, it keeps records clean and avoids any possible confusion on your side and the banks side. There is no federal requirement to do this, but most banks operate this way. If the account is only a few months old, they might just change the number, but if it's older I'm pretty certain they will have you open a new account. Depending on what automated payments you have connected to your account will depend on how much this will affect you and the extra work you'll need to do. But in reality, updating those payments and other items shouldn't take you more than an hour and that is being very generous.




So that is that! If you are incorporated you HAVE to have an EIN and if not, you have the choice to do so or not.


Easy peasy!


To obtain an EIN, head over to irs.gov/ein and follow the prompts. Towards the end go a bit slower as the last page will show you the EIN they have assigned you, but there is not a form to print. You will have to screenshot or write down that number and wait for the formal letter in the mail. So if you are wanting/needing to use that EIN asap that is your ONLY chance to get it until that copy comes in the mail. The system will not let you go back and view that page again.


If you are a sole-prop and obtained an EIN, tell me why? Did it make you feel more secure not having to provide your SSN to clients? Or if you chose not to, what was your reasoning? I'd love to hear both sides!


x,

MW

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