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EIN stands for Employer Identification Number. Employer Identification Numbers can also be referred to as Federal Employer Identification Numbers, Tax Identification Numbers, and Federal Tax Identification Numbers.
An EIN is issued to all corporations established in the US. The EIN is analogous to a Social Security Number (SSN). It is a way for the federal government to examine the status of any corporation operating inside the US. Any legal document sent to any branch of the federal, and sometimes a state, government requires one to list an Employer Identification Number.
The Employer Identification Number does not signify the type of status a corporation holds, but rather, helps to maintain adequate records. All companies, whether held by one person or by multiple people, have an EIN. An EIN also does not reflect taxable status. Both profit and non-profit corporations have them.
Other businesses may require an EIN to grant certain privileges to a corporation. For example, warehouse stores like Costco require an EIN to give users status as a business. Business owners receive in exchange certain privileges, like getting to shop half an hour to an hour earlier than regular shoppers. Corporations may also receive discounts because of their corporate status.
Potential creditors use the Employer Identification Number to determine creditworthiness of a business that wishes to borrow money. The EIN is a way of tracking the income and any debts of a company. Credit companies can score the EIN just as they would someone’s Social Security Number to determine whether they wish to lend money to a business, and if so, at what rate of interest they will lend money.
Like social security numbers, EINs have nine digits, but tend to be split into two, rather than three, sets of numbers. The first two numbers of the EIN are followed by a dash. The next seven numbers are grouped together.
It is fairly easy to apply for an EIN. One receives an EIN when the government has approved the articles of incorporation sent in by a new company. This number also protects business owners, especially the small business owner, from any personal debt responsibility, except in cases of misconduct. A person’s creditworthiness is not the same as that of a corporation that person may own. If the business ultimately fails, it is reflected in reports run on the EIN, not on the individual.
An exception to this is in the case of new small businesses. A new business cannot show much record of credit-worthiness as there is no time to establish it. In such cases, potential creditors may look to the owner of the company to assess whether to extend credit. Poor individual credit may make it difficult to obtain loans.
EINs should be memorized and guarded, as they are used so frequently, yet can be subject to identity theft. If one is a small business owner, knowing one’s EIN is important, as one may need to give it almost daily when a business is starting up. However, one should be certain that an EIN is not given out to anyone when it is not necessary to do so.
Oasis11-I know that a lot of independent contractors also have an EIN ID because they choose to receive compensation under their company name and not the individual.
Some contractors prefer to offer the business EIN instead of giving their personal Social Security number because they feel that this is safer for identity theft purposes.
Also, a business bank account monitors all incoming deposits and they also offer an end of year statement that lists all of the revenue that the company generated which makes it easy when you have to do your taxes.
Legal Zoom also offers information on filing a business entity and determining if a limited liability company or an incorporated entity is best.
There are fees and tax consequences for each step and they also offer some legal advice on which is best. They also take care of all of the filing, so that you do not have to worry about it.
The different types of business entities can be confusing it is best if you do not want to go this route to seek a qualified accountant or tax attorney that can tell you which
entity would be best for you.
When you fill out an EIN application it tells the IRS that you are a business entity for tax collection purposes.
A business EIN also allows a company to open a business account at a local bank. Most banks require this type of documentation in addition to any articles of incorporation in order to open a business account.
A federal EIN also allows a company to obtain products at wholesales prices. Many suppliers require this EIN tax identification number in order to separate the wholesale customers from the retail customers.
A IRS EIN is easy to obtain. I know for the state of Florida, you have to go to Sunbiz and fill out the form and then pay the business filing fee of $150 dollars. That is to obtain a state EIN for the State of Florida.
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