If you are a new business owner, there is one thing that you must be familiar with before you make money – federal tax id. Sometimes this is also called EIN (Employer Identification Number). To understand a federal tax ID, here are the things you need to know about it:
EIN is composed of unique numbers
You must know that EIN is composed of 9 unique numbers and it is akin to SSN (Social Security Number). The number is assigned by the government through the IRS (Internal Revenue Service). The tax ID is given to businesses within the United States and its territories.
There are several uses of obtaining EIN
Remember that there are several uses of obtaining EIN. The uses include the following:
- It can be used to file tax returns as well as other documents in business.
- It ties the employees to the employer especially when it comes to sending in taxes withheld from their paychecks.
- It can be used to open lines of credit or bank accounts.
- It can be used to apply for permits or business licenses.
- It can be used to file electronic tax returns.
- It can be used to make electronic payments.
You can apply for EIN online
You can apply online and this usually involves a third-party vendor or EIN Filing Service. You should visit the IRS website and see it for yourself. Remember though that third-party vendors are not affiliated with the federal government – they just offer their services for a fee.
You will be directed to an online portal that will gather the relevant information. With this, you will get your number through your email and you can use it immediately. In the end, this can save you time and hassle because someone else is already taking care of all the paperwork.
There are different circumstances for applying a federal tax ID
Keep in mind that sole proprietors do not need to get EIN. However, they can apply if they prefer to conduct business by using the owner’s Social Security Number. Some business categories legally require getting an EIN. Businesses with the following characteristics need to apply for EIN:
- If it is a business partnership or a corporation.
- If the business is involved with mortgage investments, trusts, and real estate.
- If it is a nonprofit organization or a farmers’ cooperative.
- If the business offers services or goods that are taxed.
- If it is required to remit sales taxes.
- If the business has a Keogh plan.
There are many things to remember before applying
As soon as you have established that you need EIN, the next thing that you need to do is to choose the ideal kind for the type of business you have. Aside from that, you should also state why there is a need to apply.
Finally, you need to fill in the field you are associated with, the products or services you are offering and your business name to complete the form. More importantly, you have to know that once EIN is assigned, it is never canceled. This means that the record is maintained – even if your business or account is closed.