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Why Does My Small Business Need an EIN

The US federal government requires that nearly all businesses have an Employer Identification Number (EIN.) This applies to businesses big and small, both set up or operating within North Carolina or outside of it. 

Also known as a Federal Employer Identification, this is a unique number, nine-digit long, that identifies a particular business and distinguishes it from all others, much like a Social Security number identifies a particular person and distinguishes that individual from all others. 

Which Small Businesses Need an EIN

Any small business registered as a sole-proprietorship or single-member Limited Liability Company (LLC) with employees is required to have an EIN. So, too, are all businesses registered as a multi-member LLC, partnership, or corporation, with or without employees. 

In addition, your small business needs an EIN if it:

  • Files Employment, Excise, or Alcohol, Tobacco and Firearms taxes
  • Withholds income taxes, besides wages it pays to a non-resident alien
  • Has a Keogh plan
  • Is involved with estates, real estate mortgage investment conduits, non-profits organizations, farmers' cooperatives, plan administrators or trusts, other than IRAs, certain grantor-owned revocable trusts or Exempt Organization Business Income Tax Returns

Changing Your Business Structure

Anytime you change the legal structure of your business, such as from a sole-proprietorship to an LLC, or from a Corporation to a Partnership, you must get a new EIN for that new entity. 

You must also get a new EIN anytime the single owner of a business dies and an estate takes over the business. 

When an EIN Is Optional and The Benefits of Getting One Anyway

If you have a sole-proprietorship or single-member LLC without employees and don't meet any of the other requirements above, an EIN is optional. As the owner of such a business, you can use your personal Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) instead, if you wish, and file your small business's taxes under that number with your own individual tax return. 

Why Get an EIN Even if Your Small Business Isn't Required To Get One

One reason you may opt to obtain an EIN for your sole-proprietorship or single-member LLC with no employees instead of using your own SSN or ITIN, however, is to reduce your own personal risk of identity theft. If an identity thief steals your EIN, then only your business assets are at risk, not your personal ones as well. 

Why Small Businesses Need an EIN

As a small business owner, and unless you qualify to use and are comfortable using your own personal SSN or ITIN, your business needs an EIN in order to pay taxes to the federal government. This includes:

  • Payroll taxes
  • Sales taxes
  • Unemployment taxes
  • Income tax withholdings

You also need an EIN to hire employees, open a business bank account, apply for business permits and licenses and file your tax returns. 

North Carolina State Tax ID Number

In addition to the EIN, the IRS requires, North Carolina requires all small businesses to obtain a State Tax ID number. Also known as the North Carolina Secretary of State Identification Number, its purpose is similar: to pay payroll, unemployment, and sales taxes and to withhold taxes on workers' wages only to the state instead of the federal government. 

Registering as a Small Business in North Carolina

One of the most important reasons to get the proper tax ID numbers for your small business is that they are necessary in order to register your small business in North Carolina.

The following shows the tax identification needed in North Carolina depending on your small business's type of ownership structure:

  • Proprietorship - Your Social Security number
  • North Carolina Corporation - EIN and North Carolina State Tax ID Number
  • Non-North Carolina Corporation - EIN and possibly North Carolina State Tax ID Number as well (speak with your Charlotte NC accountant to be sure)
  • Limited Liability Company (LLC), Partnership, Limited Liability Partnership (LLP) or Fiduciary - EIN for the respective business entity

How to Get an EIN

Acquiring a new EIN requires collecting certain information and documentation and completing specific steps.

Requirements for an EIN

  • Business Name and Address - Including legal business name or owner's name, trade name, i.e. "doing business as" (if applicable,) physical North Carolina business address, mailing address, and daytime business phone number
  • Partner or Responsible Person (if any) - Including name, title, SSN, and complete home address
  • Withholding Tax Info (if applying) - Including date first paying wages, estimated monthly withholds, and months paying (if seasonal)
  • Sales and Use Tax Info (if applying) - Including start date, classification as wholesale, retail, or both, business description, knowledge of inventory, monthly sales tax estimates, classification of accounting method as either cash or accrual, months making sales (if seasonal)

Use a Small Business Tax Advisor to Get Your EIN the Easiest and Quickest

Once you meet all the requirements for an EIN, the easiest and quickest way to get one is to enlist the aid of a qualified and experienced expert. A tax accountant Charlotte small business owners have relied on for years with their small business needs can help you complete all your requirements for a federal EIN, as well as a North Carolina State Tax ID number. This way, you can get on with the more important and pressing demands of starting and managing your business. 

Scott Boyar, CPA is a small business accountant in Charlotte, NC small business owners have trusted for years with their taxes and small business accounting needs, from helping launch their businesses to keeping them going and growing. This process often starts with helping entrepreneurs like you to get the EIN you need for your small business. 

You can reach Scott Boyar at his website https://www.sboyarcpa.com/contactus or at 704-527-272l.

Posted by Scott Boyar CPA

 

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