Many new business owners may be concerned about divulging sensitive information about their business. However, sharing your EIN is a perfectly normal practice and a whole lot safer than sharing your personal information. Let’s take a look at the specifics.
Can You Share Your EIN?
You absolutely can share your EIN. An EIN is a business identifier, so many of your clients may even request it to assess your credibility and legitimacy. In this case, not sharing your EIN could actually be detrimental to that given business relationship. In fact, your EIN allows you to share personal documents without having to also share your personal information, such as your Social Security Number (SSN), which should never be shared with anyone other than official authorities, and for very specific purposes.
You’ll also have to share it for most business transactions related to tax, banking, and, in some cases, invoicing. Sharing your EIN with other companies is not a threat to you or your business.
Scenarios Where Sharing an EIN May Be Necessary
Hiring Employees
Businesses need an EIN to set up a payroll system and pay and file payroll taxes for their employees, therefore they will need to share their EIN to provide legal payslips. If you choose to set up other schemes like pensions or private healthcare, then you will need to supply your EIN to these providers too.
Hiring employees without an EIN can cause delays and issues with legal compliance, as the EIN is required for various business activities like tax filing, opening a business bank account, and applying for business licenses.
Business Transactions
There are several benefits of having a business bank account. However, you will need an EIN to apply for one, meaning you have to share it with your chosen bank. For tax purposes, it’s easier to conduct business transactions through a business bank account. EINs are essential for separating personal and business finances, protecting your personal information, and demonstrating your business’s legitimacy to clients, financial institutions, and the IRS.
An EIN can help you build credibility, and establish your business as a separate legal entity, and is also necessary for getting business credit, applying and getting business loans, and registering for state taxes including tax refunds.
Invoicing Your Clients
Although this is not always necessary, there are some circumstances where you may want to add your EIN to invoices. The choice is largely at the discretion of the client, as it depends on how they organize their own transactions and business filings. Mainly, it’s to speed up the process of filling out tax forms at the end of the financial year.
However, this is usually not the case for payment amounts less than $600, as stipulated by 1099s for contract payments. When commencing your business relationship, you can inquire about whether or not your client wants your EIN beforehand. This will also add professionalism to how you handle business.
Filing Business Tax Returns
An EIN serves as a unique identifier for your business with the IRS. Being able to correctly identify your business enables accurate reporting and identification of your business entity for tax purposes. When you file your business tax returns, the IRS uses the EIN to associate the tax information with your specific business, ensuring proper tax compliance and reporting.
Summary
There are several cases in which you will have to share your EIN. This will either be with the IRS itself, your chosen bank where you open a business bank account or a vendor. Even though it may not always be necessary, having the ability to share your EIN substantially contributes to your business credibility and will also make getting business credit and investments a lot easier. Sharing your EIN poses little security threat and actually protects you against identity theft.