What is a Tax Identification Number?
A Tax Identification number is the same as an Employer Identification Number (EIN). The IRS uses this number to identify your business entity, just like they use your Social Security Number to identify you for your personal taxes. Applying for a Tax ID is simple and can be done online. Don’t be fooled by companies offering to file for a Tax ID for you – it’s a simple process you can accomplish on the IRS website for free and most people don’t need any help to complete the application.
Do You Need a Tax Identification Number?
Figuring out if you need a Tax ID is just about as simple as applying for one. The IRS says that you need a Tax ID if:
- your business operates as a corporation or or partnership
- you have employees
- you without taxes on income others than wages paid to a non-resident alien
- you have a Keogh Plan (tax-deferred pension plan); or
- you’re involved with organizations including:
- trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
- real estate mortgage investment conduits
- non-profit organizations
- farmers’ cooperatives
- plan administrators
In addition to filing taxes you may also need an EIN to open a bank account or apply for a credit card in the name of your business. Even if you’re business entity is currently a sole proprietorship you can still get an EIN and use it the same way, although it’s only required for those businesses that fall under the details listed above.
What You’ll Need to Apply & What to Do With Your EIN
Now that we’ve established what an EIN is and if you need one, lets talk about the nuts and bolts of securing your EIN from the IRS. You can apply for an EIN by fax, phone or email but the quickest way, and the way the IRS prefers, is online. The process will take only a few minutes, but you’ll need to have the answers to a few questions beforehand:
- the type of EIN are you applying for – sole proprietorship, corporation, LLC, partnership or estate
- the reason why you are applying for an EIN – it can be as simple as starting a new business or banking purposes or any number of other reasons
- your legal name and Social Security Number
With the online application you’ll have access to your newly generated EIN as soon as you submit your application. The IRS provides an official document that you’ll download to your computer – make sure to save this digitally as well as print a paper copy to save with your other business records.