When it comes to starting and running a partnership, there are various administrative tasks to tackle, and one of the essential items on your checklist should be obtaining an Employer Identification Number (EIN) for your partnership.
As a partner in your company, you must ensure that you are up to date with all the legal and tax requirements that come with running a partnership. A company that is registered as a partnership entity is legally required to have an EIN. In this guide, we’ll explore what an EIN for a partnership is, why your partnership needs one, and how to apply for it.
Do I Need an EIN for My Partnership?
An EIN for partnership, or Employer Identification Number for partnership, is essentially the Social Security Number for your partnership. It’s a nine-digit identifier issued by the Internal Revenue Service (IRS) for federal income tax purposes. While not all business structures require an EIN for partnership, partnerships are among those that do. Here’s why:
Identifying Your Business with an EIN for a Partnership
An EIN for a partnership serves as a unique identifier for your partnership when submitting tax documents. It ensures that your partnership’s income and tax obligations are correctly tracked and reported in line with your business structure and entity classification.
Separation of Business and Personal Finances
One key reason for obtaining an EIN for a partnership is to separate your business from its owners. This separation is vital for various reasons, including opening a dedicated business bank account, applying for credit or loans for the business, obtaining necessary permits and licenses, and complying with federal tax requirements.
Why you need an EIN for your partnership
When you apply for and obtain an EIN for your business partnership, several advantages come with it. Below are the key benefits of having an EIN:
- Business Bank Account: You can open a business bank account in your partnership’s name, which is crucial for managing your business finances separately from personal finances.
- Credit and Loans: Applying for credit or loans for your partnership is more accessible with an EIN for a partnership, and it eliminates the need for personal guarantees. There are also often more benefits associated with having a business bank account than there are for banking products for individuals.
- Permits and Licenses: Many jurisdictions require an EIN for a partnership when applying for business permits and licenses.
- Independent Contractors: If you work with independent contractors, providing them with a 1099 form is mandatory under federal law. An EIN for a partnership simplifies this process.
- Privacy: Using an EIN number for a partnership instead of a personal Social Security Number adds more privacy and security for your business transactions. It also means that you will not be charged tax individually.
How to Apply for an EIN for Your Partnership
Obtaining an EIN for a partnership is a straightforward process, and there are multiple methods available:
- Online: Visit the IRS website and use their online request portal to obtain an EIN for a partnership. This method is quick and can provide you with an EIN within 30 minutes. The process simply entails filling out the online questionnaire on the IRS EIN portal. The system will provide you with an EIN once the form containing all the correct information has been submitted.
- In-Person: If you want to apply in person, you can visit your nearest IRS office to obtain a partnership EIN. If you do choose to apply for an EIN in person, you need to be prepared for the process to take most of the day, as there is usually a high influx of people at IRS branches.
You’ll need to provide basic information about your partnership, such as its business address, details of business owners or officers, the date the business started operating, the type of business, the number of employees, and your contact information. Always make sure your contact information and address is up-to-date.
Do You Need to Apply for an EIN?
If you’re running a partnership, obtaining an EIN for a partnership is not just a legal requirement; it also offers several benefits that can streamline your business operations and protect your personal information. If you are starting a partnership or require an EIN for one you have already established, it’s best not to delay the process.