Reason why you need EIN/TAX ID

  1. File business taxes and avoid tax penalties

    As we just mentioned, certain kinds of businesses must get an EIN to file taxes. So what happens if you’re required to get an EIN but fail to do so? One pointer is to do your research early and figure out if you need an EIN well in advance of tax time. Don’t wait until tax day nears because depending on your method of application, the IRS can take up to five weeks to assign you an EIN.

    If you don’t have your EIN by tax day, and were supposed to get one, you have to fill out specific paperwork to notify the IRS. If you forget to do that, the IRS might not accept your filing, and you could face penalties for a late return.

    Plus, for certain types of tax deductions, such as home office deductions for business, your chances of an IRS audit decrease if you have an EIN.

  1. Open a business bank account

    As we just mentioned, having an EIN comes in handy when opening a business bank account. Some banks allow sole proprietors to open a business bank account without an EIN, but others have stricter policies. Bank of America checking and savings accounts, for instance, require proof of EIN from sole proprietors and all other types of businesses.

    Along with your EIN, you’ll need to provide a few other documents to open a business checking or savings account. These include your business’s formation date, business location, legal business name, and personal information about the owner. And once you open a business bank account, make sure the only money going into or out of the account is for business purposes.

  1. Easily hire employees

    If you have employees or are on the verge of hiring employees, then you absolutely need an EIN. But even if you have no immediate plans to hire employees, getting an EIN is a good idea if you think you might at some point in the future. That can be difficult to predict, but if you plan to scale your business to the point where you might need an extra set of hands, getting an EIN doesn’t hurt. An EIN lets you set up a payroll system as soon as you hire your first employee, without any delays in the hiring process.

  1. Identity protection / Prevent identity theft

    Whatever the size of your business, an EIN may offer a layer of identity protection. In a world rife with opportunities for identity theft, keeping your personal information safe is key. An EIN keeps your social security number private. When vendors look for credit information, or customers ask for data to make payment, your EIN is the number they use — shielding your privacy.

  1. Add credibility/Professionalism

    Professionalism matters in today’s competitive business climate. Small businesses need to leverage every possible advantage. An EIN gives your company gravitas: this isn’t just a side hustle or a part-time hobby — this is your business. Clients and vendors are looking to do business with serious partners; the EIN shows you’re serious about your business.

  1. Speed up business loan applications

    You can speed up the process of applying for a business loan if you have an EIN. Most lenders don’t explicitly require an EIN. As long you have any necessary business permits or licenses and are legally qualified to do business, you can apply for the loan.

    The catch is that many lenders require applicants to have a business bank account with a certain number of deposits. This is to ensure that you have a place to receive the loan funds and make periodic loan payments. To get a business bank account, you often need an EIN.

    In addition, some lenders, including SBA lenders, check business credit when evaluating your loan application. Having an EIN helps you build business credit, without which you might not be eligible for the loan (more on this later).

  1. Separation of personal and business finances

    If you have employees (or hope to in the future) an EIN is a must. Separating personal monies from business accounts is needed. You’ll have to pay payroll and Federal Insurance Contributions Act taxes to staffers, even if it’s only temporary help you hire through a business rush. The EIN allows you to make payments to state and federal agencies and assures you earn credit for the amounts paid.

  1. Licenses

    If you need licenses for your business, you’ll need an EIN. These provide state and local authorities the information they need about your organization and help verify you have the credentials necessary to run your business in accordance with regulations.

  1. Business growth

    Business growth is the aim of all owners, and one day you may want to apply for a loan to expand. An EIN will be necessary for all banking transactions — from opening business checking and savings accounts to applying for a loan. Having the EIN in place before you’re ready to fill out loan documents (and establishing your business with a bank in advance) may help secure the funds you need to grow.

  1. Establish credit

    Establishing credit for your business is as important as establishing it for yourself. An EIN is required by credit card companies to create a business account. This launches a commercial credit report, which can help boost your chances of good loan rates from vendors and creditors.