As a business owner, it is critical that you keep your business and personal lives separate. One of the best ways to do that is to get an Employer Identification Number (EIN). EINs not only keep Social Security Numbers private, but they also project more legitimacy for your business.
Below, CNBC Select explains how to apply for an EIN for your business and eight reasons why you need one.
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What is an Employer Identification Number (EIN)?
An Employer Identification Number (EIN) is a federal identification number for your business. It is a nine-digit number that is similar to a Social Security number. However, it is formatted as 12-3456789 instead of 123-45-6789 on official forms. An EIN is also referred to as a Federal Tax Identification Number.
Separate business entities like corporations and LLCs need them for tax purposes. Sole proprietors share their EINs to avoid sharing their Social Security Numbers when conducting business.
8 reasons why you need an EIN
Although many small businesses operate without an EIN, it is required for many business functions as your business expands. These are a few of the most common reasons why you need to apply for an EIN.
- Operate a separate legal entity. While sole proprietors can use their Social Security Number (SSN), other forms of business must apply for an EIN. These include corporations, LLCs, trusts, and more which are separate legal entities from you personally.
- Protect your Social Security Number. Sole proprietors can operate a business using their SSN. However, they must share it with vendors, clients, tax authorities and more for tax purposes. Using an EIN protects your SSN from being shared and reduces the potential for identity theft.
- Open a business bank account. You cannot open a business bank account for most forms of business without an EIN.
- Apply for credit in the name of the business. Many banks require an EIN for your business when applying for a loan, line of credit, or credit card.
- Hire employees. The government requires businesses to have an EIN if they hire an employee or withhold taxes on income paid to a non-resident alien. Your EIN is used for Federal and state payroll tax reports and payments.
- Apply for business licenses and permits. Use your EIN when applying for business licenses, permits and other requirements.
- Use a Keogh Plan. This tax-deferred pension plan requires that the business has an EIN.
- File taxes for your business. Your business must have an EIN when filing tax returns for employment, excise, or alcohol, tobacco and firearms.
How to apply for an EIN for your business
Applying for an EIN is free to do through the Internal Revenue Service. In fact, you can apply online at the IRS website and have your EIN within minutes. Follow these steps to apply online for an EIN for your business.
- Determine eligibility. You may apply online if your business is located within the U.S. or a U.S. territory. Otherwise, you need to apply over the phone. The person applying must have a valid taxpayer identification number.
- Apply at the IRS website. Visit this link to start your EIN application.
- Select your business type. Are you a sole proprietor, partnership, corporation, LLC, estate, trust, or another type of entity?
- Provide a reason for requesting an EIN. Are you starting a business, hiring employees for the first time, opening a bank account, changing the type of organization, or purchasing an active business?
- Authenticate your personal information. Provide your personal information, including your Social Security Number and authenticate that you are eligible to apply for an EIN.
- Business location. Share the address of the business (and mailing address, if needed).
- Business information. Provide the name of your business, which county and state it's located and when and where it was formed.
- Receive EIN. Print out the confirmation letter with your EIN.
Applicants are limited to one EIN per responsible party per day. You can also apply for an EIN by fax, mail, or telephone.
Best small business resources
Once you have your EIN, it will be easier to separate personal and business expenses and take advantage of various small business resources, such as business credit cards, business checking accounts, business savings accounts, business loans and business expense trackers. Here are some useful business tools to consider:
Best no annual fee business credit card
The Ink Business Unlimited® Credit Card is a flat-rate cash-back card with a strong intro-APR offer for purchases.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn $750 bonus cash back after you spend $6,000 on purchases in the first 3 months from account opening
- Earn unlimited 1.5% cash back on every purchase made for your business
- No Annual Fee
- Redeem rewards for cash back, gift cards, travel and more through Chase Ultimate Rewards®.
- Earn rewards faster with employee cards at no additional cost. Set individual spending limits for greater control.
- Round-the-clock monitoring for unusual credit card purchases
- With Zero Liability you won't be held responsible for unauthorized charges made with your card or account information.
- 0% introductory APR for 12 months on purchases
- Member FDIC
Balance transfer fee
Either $5 or 5% of the amount of each transfer, whichever is greater
Foreign transaction fee
3% of each transaction in U.S. dollars
Best small business credit card for travel
The Ink Business Preferred® Credit Card is an excellent business card with useful benefits, valuable rewards and a generous welcome bonus.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn 90k bonus points after you spend $8,000 on purchases in the first 3 months from account opening. That's $900 cash back or $1,125 toward travel when redeemed through Chase Travel℠
- Earn 3 points per $1 on the first $150,000 spent on travel and select business categories each account anniversary year. Earn 1 point per $1 on all other purchases
- Round-the-clock monitoring for unusual credit card purchases
- With Zero Liability you won't be held responsible for unauthorized charges made with your card or account information.
- Redeem points for cash back, gift cards, travel and more - your points don't expire as long as your account is open
- Points are worth 25% more when you redeem for travel through Chase Travel℠
- Purchase Protection covers your new purchases for 120 days against damage or theft up to $10,000 per claim and $50,000 per account.
- Member FDIC
Balance transfer fee
Either $5 or 5% of the amount of each transfer, whichever is greater
Best overall business checking account
Chase Business Complete Banking®
Special offer
Earn up to $500 when you open a new Chase Business Complete Checking account. For new Chase business checking customers with qualifying activities.
Monthly maintenance fee
$15, with options to waive
Minimum deposit to open
None
Minimum balance
None required but maintaining a minimum daily balance of $2,000 in your account as of the beginning of each day of the statement period will waive the monthly maintenance fee
Annual Percentage Yield (APY)
N/A
Free ATM network
More than 16,000 Chase ATMs
ATM fee reimbursement
None
Small business perks
Multiple owners get individual debit cards, PINs and online access to the account; debit cards for employees for which the owner can control daily limits
Overdraft fee
$34 with ways to waive
Mobile check deposit
Yes, using the Chase Mobile®app
Terms apply. Chase Bank is a Member FDIC.
How to avoid the monthly fee:
Meet one of these conditions during your monthly statement period.
- $2,000 minimum daily balance
- $2,000 in purchases on your Chase Ink® Business Card(s)
- $2,000 in deposits from QuickAccept℠ and/or other eligible Chase Merchant Services transactions
- Link a Chase Private Client Checking℠ account
Best overall small business expense tracker
FreshBooks
Cost
Costs may vary depending on the plan selected - click "Learn More" for details
Standout features
Extremely easy to get started; Lite plan offers a lot of features; it's easy to upload receipts (including mileage) and create invoices. App offers time tracing. Very mobile friendly interface.
Categorizes your expenses
Yes
Links to accounts
Yes, credit cards and bank accounts
Availability
Web, iOS and Google Play
Security features
FreshBooks utilizes a 256-bit SSL encryption. The program collects a minimal amount of personally identifiable information, and if your information is ever lost, it's backed up in multiple databases so you can retrieve it again.
Bottom line
Applying for an employer identification number (EIN) is an important part of your business. It not only keeps your personal information safe, but it also makes it possible to open a business bank account, hire employees and handle other important tasks. You can apply for an EIN online through the IRS website and get your number in minutes. It is free and easy to do.
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