I was asked the other day by a new business owner whether she should get an Employer ID number (EIN)). An EIN is a tax identifier for a business. She is starting her business as a sole proprietor, but she may file to be a single-member limited liability company (LLC) soon. Since she is going to be an LLC, she wondered if she should go ahead and get the EIN now. The answer to this question is, of course, "It depends."
When You Need an EIN
According to the IRS, you will need an EIN if:
• You have employees
• Your business is a corporation or partnership
• You must file employment, excise, or alcohol-tobacco-firearms returns
• You withhold wages on income
• You have a Keogh (retirement) plan
I also know from personal experience and from clients that most banks want a business to have an EIN in order to set up a checking account, even if the business doesn't need an EIN for any of the IRS reasons above.
Does a Sole Proprietorship Need an EIN?
No, not unless it is needed for one of the IRS reasons above or unless you are setting up a business checking account and the bank requires it. You can use your Social Security Number as your business identifier.
What About Single-Member LLC's?
A single-member LLC that does not have any of the IRS conditions above does not need an EIN, unless the business elects to file taxes as a corporation (you probably would not do this). You would use your own SSN for tax purposes, and file a Schedule C to show your business profit/loss on your personal tax return.
The IRS says that if your single-member LLC "has or intends to have employees, the EIN rules are different. If there is or will be employment tax reporting, both the single member owner and the SMLLC will need an EIN (two EIN's)."
For More Information
How to Apply for an Employer ID Number
How to File a Schedule C for a Sole Proprietorship (or Single-Member LLC)