Employer Identification Numbers (EINs), or Federal Tax Identification Numbers (FTINs), are like social security numbers for businesses. Tax reporting for businesses is tracked by the EIN. Below we have discussed the benefits of getting an EIN. We recommend you wait to apply for an EIN until your business has been formed.
Advantages
Getting an EIN is a good idea regardless of what kind of business you have. Keep your startup EIN safe for future tax reporting and official documents once you have received it. There are several benefits mentioned below:
File Tax Returns
For partnerships, LLCs with multiple members, or companies with employees, you must have an EIN. Using this identification, you will file your company taxes with the IRS at the end of the year. The EIN will be used to determine every financial decision made on your business’s behalf. You won’t have to worry about missing tax deadlines if you apply as soon as possible.
Hire Employees
As a business owner with employees, you will need an EIN since a multi-member LLC doesn’t file and pay taxes as the company; each employee files his or her taxes individually under the company’s 1040 tax form. Payroll taxes will be tracked by the IRS using the business’s EIN, which employers need to set up payroll. Registering for the employer tax system in your state is necessary to pay workers’ compensation and withhold income taxes on behalf of your employees.
Maintain Corporate Veil
Your corporate veil can be maintained with an EIN if you’re a single member LLC. Business owners are protected from personal liability for the debts of the corporation by the corporate veil. The corporate veil can be pierced if your personal finances and professional finances are not kept separate. By having its own identity separate from its owners, your business will also establish credibility and professionalism.
Prevent Identity Theft
Using an EIN instead of your Social Security number (SSN) keeps your SSN more private, reducing the risk of identity theft; keeping your personal finances and business finances separate makes it less likely for someone to break into your accounts. You’re putting yourself at greater risk if you continue giving out your SSN to clients or vendors as a sole proprietor without an EIN.
Business Bank Account
Business banking accounts require an EIN from most banks. Keeping your personal and professional finances separate is another benefit of opening a business bank account. Tracking and managing your professional expenditures will be simplified, which will allow you to plan your budget more effectively.
Additionally, business bank accounts give you access to finance professionals and services (e.g. payroll services, small business loans) to help you run your business more efficiently. Sometimes your bank offers business credit cards, which come with their own benefits.
Build Business Credit
Credit agencies and lenders track your business’s credit using an EIN, just as they do your personal credit with a social security number. Maintaining your business’s financial stability requires strong credit, which can be achieved by applying for an EIN. An established business credit history could result in better interest rates, more loan acceptances, and a higher chance of future expansion.
Qualify for More Business Loans
Many lenders prefer companies with business bank accounts that have established their business credit as a prerequisite for obtaining business loans. However, EINs are not required for all business loans. The credit score of your business will play a big role in your ability to qualify for certain loans. Getting an EIN is essential if you want to begin establishing your credit.