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Do You Need a Tax ID Number for Your Business?

By Lane V. Erickson, Idaho Business Lawyer

At the Racine law office our goal as a premier Idaho business law firm is to guide each of our clients not only in the creation but also in the performance of their business operations. We have the expertise necessary to help each of our clients create their business and move forward in the operation of their business in ways that will help them be successful. Regardless of whether you are a sole proprietor, or you plan on creating a corporation and having hundreds of employees, we are confident that we can answer your questions and help you move your business forward successfully.

When you first begin your business, there are many questions that you need to answer. These questions could include things such as: what will the name of my business be; where will I locate my business; will I have partners in my business operation; and am I going to have any employees? Many of these questions will help you determine how you structure your business. Additionally, many of these questions will also help you determine whether or not you need a tax ID number which is commonly known as an EIN in order to correctly operate your business.

An EIN, which is an acronym for employer identification number, serves as a way to identify who your business is. The best way to think of an EIN is that it is a social security number for your business. A person obtains an EIN from the Internal Revenue Service. This can be done in several different ways, but most recently, theIRS has provided the application process online. We have assisted numerous clients in obtaining their EIN as they start their new business venture.

This brings us to the purpose of this article. If you are beginning a business, or even if you have a business up and running, the question you need to ask yourself is: Do I need a tax ID number for my business? To keep things simple in helping you determine whether you do need a tax ID number we have prepared three specific questions below together with an explanation to help you determine whether or not a tax ID number is needed for your business. The short answer is that if you answer yes to any of the questions below, then you will need one.

Will You Have Any Employees?

The number one reason that you may need an EIN or a tax ID number is because you will have employees as part of your business operation. Remember, EIN is the acronym for “employer identification number”. This simply means that if you are going to be an employer then the IRS requires you to have an EIN as part of your basic business structure.

If you are an employer, then you are required to do tax withholdings for your employees. This would include both federal and state tax withholdings. Additionally, you would be required to apply for and obtained Workers Compensation Insurance, as well as unemployment insurance. Each of these things require an EIN.

For many small businesses, it doesn’t make sense to have employees because of the administrative time and expenses involved in doing all the things listed above. In some instances, a small business owner can hire independent contractors rather than employees. An independent contractor is required to track their own income and make their own withholdings and pay their own taxes. Additionally, an independent contractor is required to obtain their own insurances whether that would be for workers compensation or for unemployment.

Idaho law provide some very specific guidelines on whether a person is considered to be an employee or an independent contractor regardless of what you may be calling them. Whether a person is considered to be an employee under Idaho law really depends on several specific factors. The purpose of this article is not to help you determine whether a person is an employee or an independent contractor. We provide a different article that explores this difference and help you correctly utilize independent contractors. The bottom line for this article is simply to let you know that if you have any employees regardless of how you structure your business, you will be required to have an EIN from the IRS in order to properly operate your business.

Will Your Business be a Corporation or a Partnership?

Even if you don’t have employees, the next question we have to ask to determine whether you need an EIN is whether your business will be operated through a corporation, an LLC, or a partnership. If you have created your business as a sole proprietorship, which simply means that you are the only person operating the business and you have not formally filed for a corporation, an LLC, or a partnership, then your personal social security number acts as your business number as well. In this instance, you don’t need to get an EIN in order to correctly operate your business. The reason this is true is simply because your business is you. In other words, there is no separation between you and your business.

However, if you have created a separate entity, which would be the corporation, the LLC, or the partnership described above, then you are required to obtain an EIN as a separate way of identifying who your business is. In other words, by creating one of these entities, you have created a new legal person other than yourself who is operating the business.

When a business is operated through a corporation, an LLC, or a partnership, and EIN is required in order for bank accounts to be opened, and for other important business actions to be taken. Every business owner hopes to have their business expand and grow. As a result, if it is likely that you will also have employees at some point during the operation of your business entity, this is yet another reason why your business entity needs an EIN. However, the most important reason for having an EIN is so that your business would qualify for and be able to apply for either loans, or for grants or other sources of financing. Additionally, your state or local laws may also require an EIN when you’re applying for certain types of business licenses.

Will You Be Filing a Tax Return for Your Business?

The final reason that you may need an EIN for your business is if you’re going to be filing tax returns for your business. An EIN is required on all federal tax forms as well as all federal payroll or employment tax forms. In Idaho, an EIN is also required on all state tax filings.

So there you have it. If you answer yes to any of the three questions listed above, then it is most likely that you will need an EIN as part of your business structure. We have helped numerous clients in the creation of their businesses, including business entities, and in doing so also are well experienced in helping our clients obtain an EIN from the IRS. If you have questions about your business structure, and whether or not you need an EIN or you know you do but don’t know how to get one, we can help!

Enlist an Idaho Business Attorney to Help You

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.

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