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What is an EIN and why do you need one?

If you’re considering launching a business or hiring your first employees, you’ll need an EIN from the IRS, and here’s why.


What is an EIN and why do you need one?

An employer identification number (EIN) identifies your company as a business entity. Similar to how we have social security numbers, an EIN is your business’s unique identifier that the government and financial lenders use to differentiate your business from another. Some sole proprietors are able to use their social security number as their business identifier because of the nature of their business, but corporations and LLCs are typically required to sign up for an EIN with the IRS.

You can apply for an EIN on the IRS website, as well as by fax, phone and mail. The IRS runs a specialty line on weekdays, but many regard the online application as the preferred submission method. In order to use the online application tool, business owners will need to have a valid social security number or pre-existing EIN. Once you have an assigned EIN, you can file tax returns on behalf of your business and conduct other necessary operations that come with running a business in the U.S.

Why timing matters

It’s important to sign up for an EIN as early as possible, because the longer you go without one, the longer that you are potentially restricted from normal business activities such as hiring employees or opening a business bank account. The government requires an EIN before you hire employees to work for your business, and if you don’t have an EIN, that increases the amount of time you have to wait before your new hires can begin working. This slows company performance and detracts from possible revenues. Additionally, if you want to open a business bank account, the lender will want need to know how to identify your business and take a look at past credit history and performance.

The lending process is strict, therefore it’s helpful to meet all of their requirements in advance of your request to open an account. If you’re applying for an EIN during the process of doing something that you need for your business, you’re late to the game. Instead, apply for this early on as this number is a standard identifier for businesses that you will have to show proof of sooner or later.

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Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

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