Starting a small business takes considerable work, but it’s an exciting process. One thing to consider is that you may need the Internal Revenue Service (IRS) to issue your company an employer identification number (EIN).
The EIN is your company’s unique number. There are several important purposes of EINs, so understanding these is beneficial to business owners.
Identification for taxes
One of the primary purposes of an EIN is to identify the business for tax purposes. If you have employees or meet other specific requirements set by the IRS, your company needs an EIN.
You’ll use the EIN when you file tax returns or make tax payments. The EIN also provides a division between the company’s taxes and your personal taxes.
Opening business accounts
Opening a business bank or credit account will likely require an EIN, and it’s necessary if you want to start to build a business credit profile. By taking the time to obtain an EIN and open business accounts, you may find it easier to track expenses and manage cash flow. This also sets a clear line between personal and company finances.
Supporting business operations
An EIN is also needed when you want to apply for a business license or permit. You may also need it to enter into business contracts. Some businesses may refuse to work with a company that doesn’t have an EIN.
The EIN is only one critical step in opening a small business. You also need to ensure your company has the legal protections it needs. Working with someone familiar with these matters may help you to get this done in an efficient manner.