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When Does a Sole Proprietor Need an EIN?

EIN is an abbreviation stands for Employer Identification Number. It is also known as the Federal Employer Identification Number (FEIN). EIN is a unique, nine-digit number that is issued by the Internal Revenue Service (IRS) in order to assign to the businesses operating in the United States for the purpose of identification and taxes.

The EIN or FEIN functions as your business’s social security number. We can say that you have your own tax number and your business needs its own tax number since you have to keep your personal finances separate from your business. Your business EIN number will help you with these issues below:

  • File taxes for your business – which is a legal requirement,
  • Opening a business bank account,
  • Protecting your identity by avoiding giving out your personal social security number to clients.

When do I need an EIN as a Sole Proprietor?

Employer Identification Number (EIN) is required to obtain by business entities such as corporations, partnerships, and limited liability companies. However, mostly, sole proprietors do not need to have an EIN number. They can use their own social security number instead of using an EIN. But we still advise you to obtain an EIN. There are some moments that obtaining an EIN as a sole proprietor is a must to do. Let’s discover when you are required to apply for an EIN:

  • If you are a sole proprietor, you must apply for an EIN to hire employees,
  • Having a Keogh or Solo 401(k) retirement plan,
  • Filing for bankruptcy,
  • A partnership or limited liability company formation or incorporation,
  • Also, you may obtain an EIN to open a business bank account as some banks require you to have an EIN.

As, we highly recommend you obtain an EIN even if you are not required to. Because obtaining an EIN is always advantageous in terms of avoiding identity theft and helping establish independent contractor status- which means that using an EIN for your tax payments helps to show that you are an independent company owner. This may be more attractive to your clients.

Applying an EIN, handling the process might be really confusing and complicated for you. At this point, you can always trust us and our service. Our assistance and support service is here for you no matter where you are.

If you have any further questions, please do not hesitate to contact us via phone call, e-mail or online chat.

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