An EIN is your business’s federal employer identification number. It’s a nine-digit number assigned to you by the IRS for the purpose of filing taxes. For obvious reasons, corporations, LLCs, and other business entities must use EINs. Sole proprietors, on the other hand, can simply use their social security number.
There are, however, certain instances in which a sole proprietor may need to obtain an EIN. Even failing that, there may be instances in which obtaining an EIN would provide significant benefits to a proprietor that didn’t technically require one.
When is an EIN Required for a Sole Proprietor?
Basically, getting an EIN allows you, as a sole proprietor, to do make more business moves. Without an EIN, a sole proprietor would not be able to:
- Hire employees
- Have a Keogh or 401(k)
- Buy an existing business
- Inherit a business
- Form a partnership
- Form an LLC
- File for bankruptcy
In addition, there’s going to be some banks that refuse to set up a business account for you unless you have an EIN.
Even if those are things you don’t think you’re ever going to need, there are still a number of reasons why having an EIN is a good idea.
- EINs can help you avoid identity theft. Identity thieves can steal social security numbers to file fraudulent tax returns.
- EINs can help you establish independent contractor status. Independent contractor status is distinct from employee status. Using an EIN can make you more attractive to potential clients.
How Can I Obtain an EIN if I’m a Sole Proprietor?
Unlike many dealings with the IRS, the process of obtaining an EIN is simple and free of charge. The IRS provides an EIN assistant that allows you to fill out an online application. Alternatively, you can simply fill out Form SS-4. As a last resort, you might consider actually calling the IRS at their toll-free number: 800-829-4933.
To EIN or Not to EIN
That is the question. Ultimately, the decision is up to you. The key advantage is that possessing an EIN will open up your options whereas not having an EIN will significantly reduce them.
If for example, you want to open up a credit card in your business’s name, it will be much easier to do so with your EIN rather than your SSN. It also offers a layer of protection between you and others. EINs are not nearly as ripe for the plucking as SSNs are when it comes to identity theft.
Setting up your business for success requires availing yourself to gowing possibilities. Ultimately, the process is painless and does not come with any cons. That makes it well worth the effort.