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Why do You Need an EIN for Your Business Entity?

By Lane V. Erickson, Idaho Business Attorney

For more than 70 years the attorneys at Racine Olson have assisted business clients with the creation, operation, and management of their Idaho business entities. These entities could include partnerships, LLCs, corporations, nonprofit corporations and sometimes non-profit associations. 

As the premier Idaho business attorneys, our team at Racine Olson works with each client’s particular needs when it comes to business issues. Our team of skilled attorneys includes partners Lane Erickson, TJ Budge, and Nate Palmer and of counsel attorney Dave Bagley. Our team has the knowledge, experience, and skill to provide good legal counsel to each of our business clients. We provide valuable guidance to each client when they are creating their small business. Additionally, we help with understanding and negotiating business contracts. More importantly, we are there to help our clients, when something goes wrong. In all of these situations we have helped our business clients make good business decisions so their businesses can be successful. We are confident that we can help you too. 

The purpose of today’s article is to describe why you need an EIN for your business entity. The acronym EIN stands for “employee identification number”. The IRS is the agency that issues the EIN for small businesses.

Most business owners want to separate their business operations from their personal life. In other words, they want to make sure that any liabilities they have in their personal life do not affect their business. The reverse is also true. Owners of small businesses often want to make sure that any liabilities that arise in their business operations do not affect their personal life and assets. 

The way that this is accomplished is when you create a separate business entity such as an LLC or a corporation. When you create a business entity such as this the law considers this business entity to be a separate legal person. Because of this there has to be a way that you can identify who that business entity is. Individual people have a social security number that proves who they are. Likewise, the EIN for a business entity identifies who the business is. In other words, the EIN in many ways acts like a social security number for the business entity. There are many things that you use your EIN for in your small business operations. 

Bank Accounts

The first thing that you would use your EIN for would be to establish and create any financial or other bank accounts needed for your small business. Again, when you individually go to open a bank account, they require you to use your social security number. Likewise, when you open up any bank accounts for your small business, you are required to have the EIN so the bank can identify that that bank account is owned by your business entity. 

Having a separate bank account for your business entity is vitally important in maintaining the separation of your business assets and liabilities from your personal assets and liabilities. If you commingle your personal financial accounts with your business, then in most instances the law would say that you do not have a separate business entity. This means that the corporate shield, or the protection that separates you personally from your small business, no longer exist. 

To keep the corporate shield in place and avoid any problems we recommend that you open up a checking account and at least one savings account associated with your business entity through your business EIN. We did recommend that you keep your business finances identified through your EIN completely separated from your personal finances at all times. 

Tax Filings

Another reason why you need an EIN for your business operation is so that you can file the appropriate tax filings. On every federal and state tax filing you are required to provide the EIN as well as the business name for your business operation. Again, this number acts as an identifier for your business so that the IRS and the state tax agencies can verify any and all taxes that may be owed by your business entity to the agency. 

Some people are surprised to learn that even when you have an LLC as your business entity, and you set it up so that it is a pass-through entity, a tax filing is still required. In other words, even if your LLC is not required to pay any taxes, it is still required to file a federal and state tax return every year. These tax filing documents show the income that passes through the entity to the owners, and it also shows the amount of income that goes to each individual owner. The LLC is then required to provide certain tax documents to each owner so they can include them in their own personal tax filings. 

On every one of these documents the EIN for the business entity is required to be listed. Most of these documents also require the business name as well as the address for the business. Most of these documents also require a listing of who the managing member or manager is so that the tax agency can contact a live human being if there are any questions. 

Employees

Last but not least, the EIN is required any time you have any employees. As the acronym states it is an “employer” identification number. The EIN number is then used for wage and compensation purposes, as well as others. These other reasons would include things such as employee retirement plans, Workers Compensation Insurance accounts, unemployment insurance accounts, and so forth. 

As you can see, regardless of whether your business entity actually has any employees or not, you were still required to get an EIN for your business entity. We have helped numerous business entities obtain their own EIN from the IRS and then use that EIN throughout their business processes and procedures. If you have questions or concerns we are confident that we can help you too!

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 free 30-minute consultation. Call us toll free at 877-232-6101 or 208.232.6101 for a free 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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