Starting a small business can be one of the most fulfilling ways to provide for yourself. But whether you’re taking the leap by turning your side hustle into a full time gig, starting a food truck, or building your own construction business, there are some things you’ll need to take care of before you begin.
One of the things you’ll need to know about is Employer Identification Numbers (EIN). This article will answer the questions: what is an EIN, do you need an EIN to open a business bank account, and how can I get an EIN?
What is an EIN?
EIN stands for Employer Identification Number. It’s also known as a Federal Tax Identification Number. Created in 1972, the EIN is used by the IRS to identify taxpayers that are required to file various business tax returns.
It is comparable to the Social Security number assigned to individuals. Once an EIN has been issued to an entity, it will not be reissued. EINs do not expire. It lasts for the life of the business and beyond.
Do You Need an EIN to Open a Business Bank Account?
Under most circumstances you’ll need an EIN if you’re running a small business. A business needs an EIN to file business tax returns and to pay employees. Also, if you want to be considered a Partnership, LLC, Corporation, S Corporation, or a Non-profit, then your business is going to have to obtain an EIN. Without the number the, the IRS sees you as a private individual taxpayer.
If you’re a single-person enterprise — a sole proprietor without employees or a single-member LLC — then it is technically possible to open a business bank account without an EIN, but it depends on the policies of the business bank.
Why an EIN is Needed to Open a Business Bank Account
An EIN helps show that your business is legitimate. When dealing with large sums of money banks need to make sure people are who they say they are, are running legal businesses, and that the people trying to open up a bank account are authorized to do so.
An EIN is one of the many ways banks are able to make everyone is in compliance with the rules and regulations. It confirms the details of your identity and your business. The IRS also uses your EIN to allow you to file an electronic tax return, make an electronic payment, and pass an IRS Taxpayer Identification Number (TIN) matching program.
There are also other things you’ll need to open up a business bank account. We break down everything you’ll need to open a small business bank account in this article.
How to get an EIN
Getting an Employer Identification Number might seem like an intimidating process, but in reality you can get things done in a quick and efficient manner. Applying for an EIN is a free service offered by the IRS. You should be able to get everything done in under an hour through clicking on this website and filling out all of the proper forms.
As we stated above, there are some instances where your business does not need an Employee Identification Number and some banks that won’t need one to get started if you’re a sole proprietor without employees or a single-member LLC, but getting an EIN is actually faster than the time it may take you to figure out how to (and if you can) operate without one.
Other Uses of an EIN for Your Business
There are a number of different possibilities that having an Employee Identification Number opens up, besides helping you to open a business bank account and keep your personal and business banking separate. Below we’ve listed some of the top things you can do with your EIN.
Legitimize your business
An EIN allows your company to legally hire contractors and employees, a signal that your company is growing bigger and more successful, and that you’re serious about that growth. An EIN on your forms also signals that you are in fact a business when dealing with vendors.
Help to secure your identity
An EIN — like a social security number — is only assigned to one business. This helps identify your company and what you do to any number of institutions including business banks, the IRS, and other government bodies. When you’re using your EIN in order to be paid or open accounts, it means that you’re not sharing your social security number. Which means that your SSN is less likely to end up in the hands of someone who has bad intentions for it.
Get a credit card for your business
An EIN will allow you to apply for a business credit card for your company. A business credit card is another necessary and important step to separating your personal finances and your business finances. That in turn allows you to build up a line of business credit, which is extremely important for any company.
Apply for a business loan
Loans are a necessary part of many businesses who are starting up their operations or looking to take things to the next level. An EIN isn’t technically required for most business loans, but it does help you prove your legitimacy to any potential lender, and take more steps in the right direction.
If you’re looking to open up your own business banking account, NorthOne is the right place for you. Click the link here and you can apply in about three minutes. Oh, and make sure to have your EIN handy if you’re a company that needs one.
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