Many people who run one-person businesses debate whether or not it’s worth getting an EIN. After all, it’s not legally required, and you may be content as is. However, if you’re operating on your own, there are still benefits of EINs for sole proprietors. These will be unpacked in the below article.
What is an EIN?
First, you need to understand what exactly an EIN is and what it means for your business. An Employer Identification Number (EIN) is a 9-digit figure assigned and used by the IRS to identify businesses and keep track of their tax history. This includes previously filed business tax returns and taxes currently owed to the IRS by the organization. Given its purpose, you may still be wondering what applicability this has to sole proprietors. Take a look below.
The Benefits of Getting an EIN as a Sole Proprietor
The truth of the matter is, that there are several benefits associated with having an EIN as a sole proprietor. Below is a closer look at what you can look forward to when you apply for an EIN even as someone who operates a business on your own.
Keeping Business and Personal Finances Separate
Although you may be managing to keep your business and personal finances separate, having an EIN prevents you from having to use your Social Security Number (SSN) when filing for tax. Having an EIN allows you to apply for business liability insurance, which removes some of the risk related to running a business.
Getting Business Credit Products
Opening a business bank account has several benefits, including advisory channels for managing any company profits you make, better rates when it comes to interest and banking services, and premium customer service.
Having a business bank account will allow you to more easily keep track of your business’ income and outgoings more, as most banks will be able to provide accountancy advice for ensuring your money from your business is properly managed. You can only open a business bank account with an EIN, unless you are registered as a sole proprietor or single-member LLC.
Opening a Business Bank Account
One of the other perks of having a business bank account is the fact that you gain access to business credit products. A business credit card is a valuable source of cash, especially if you are a sole proprietor. They provide a financial cushion for any time business is quiet.
In addition, these credit options offer better interest rates of return, meaning you won’t take on loans that are as financially straining as personal loans.
Ability to Acquire Employees During Expansion
Once you have an EIN, you’ll be able to take on employees without too many administrative hurdles. One of the key legal requirements for taking on staff is having an EIN. Therefore, applying for an EIN as a sole proprietor will get you ahead of the game. Once you’re registered with the IRS and declare that you have employees working under you, you won’t have to undergo the EIN application process again, you can simply proceed with employing staff.
Maintaining an Accurate Tax History
An EIN helps differentiate between personal and business finances, simplifying tax reporting and ensuring privacy. Additionally, an EIN allows for easier tracking of income, expenses, and transactions related to the business, aiding in the accurate reporting of business activities and taxable income.
The EIN also facilitates compliance with tax regulations and helps the IRS ensure transparency in tax reporting. Ultimately, having an EIN as a sole proprietor streamlines the process of managing financial records and tax obligations.
Minimizes Identity Theft Risks
By using an EIN, sole proprietors can limit the exposure of their SSN, which is a crucial piece of personal information that identity thieves often target. When sole proprietors provide their SSNs to clients or vendors for tax purposes, such as completing a Form W-9, they increase the risk of their information being mishandled or stolen. Using an EIN instead can reduce the number of times a sole proprietor needs to share their SSN, thereby minimizing the potential for identity theft.
Adds Credibility and Professionalism to Your Business
When you can present an EIN to new clients, future investors, or vendors, then it adds an element of professionalism to your organization. It lets people know that you aren’t just doing your job as a hobby, but that you take it seriously. Obtaining an EIN helps establish your business as more professional and credible. It separates your business identity from your personal identity, demonstrating a commitment to running a legitimate and responsible business.
An EIN can enhance your credibility with clients and make you appear more professional, especially when dealing with larger companies or government entities. It can also help you establish yourself as an independent contractor, broadening your client base.
Helps You Establish Business Credit
Obtaining an EIN is a critical step in establishing business credit. By using your EIN to establish a business identity, open a business bank account, and apply for a business credit card.
This number is essential for applying for government contracts, certain grants, or loans. and build a credit history, you can establish a strong credit profile for your business, which is crucial for securing loans, attracting partners, and obtaining the best possible insurance rates later down the line. After this, you can then begin building a credit history for your business.
Helps to Legitimize Your Business
An EIN can help demonstrate to the IRS that you have a legitimate business, which can be beneficial for certain types of business tax deductions. Clients and vendors may also prefer to use your EIN for their own tax reasons, and wholesale distributors may require an EIN check before doing business with a retailer.
Opens Up Opportunities for Non-Us Entrepreneurs
If you don’t have a U.S. Social Security number or Individual Taxpayer Identification Number, an EIN can be particularly helpful for starting a business. You can use your EIN to complete tasks that otherwise might require personal tax ID numbers, like opening a business bank account. This will make tax compliance and other business operations a whole lot easier, meaning you can focus on starting your business without worrying about any of the legalities behind it.
How to Apply for an EIN
Applying for an EIN is a lot easier than many think. The IRS website has a portal for new EIN applicants. If you want to apply for an EIN, simply visit this site, and fill out the questionnaire presented to you. The entire process will take around 30 minutes and will ask you very basic information about your business. Details may include your registered business address and contact information.
Need to Look Up your EIN? Use EINsearch.com today
Obtaining an EIN as a sole proprietor offers a range of benefits that can enhance the professionalism, credibility, and growth potential of your business. From separating personal and business finances to facilitating business credit building, hiring employees, and legitimizing operations, an EIN serves as a vital tool for establishing and expanding your business. Whether protecting your identity, accessing financial services, or positioning your business for future opportunities, the advantages of having an EIN underscore its importance for sole proprietors looking to thrive in the business world.
If you already have an EIN but have misplaced it, there’s no need to worry. You can use an EIN lookup service to quickly and efficiently find your EIN. By using a service like EINsearch, you’ll simply need to supply some basic details and select how often you need to use the service. Using an EIN lookup tool is a great way to save time due to the extensive database these tools have access to.