Starting a business can be overwhelming and difficult, but one of the first steps you need to take is making sure you have a federal tax ID number. Our accountants can help you prepare your paperwork and file on your behalf to avoid missteps or holdups.
A Federal Tax ID is a nine digit number assigned by the US IRS to classify how a business is taxed. Nearly all businesses conducting operations with the US must have an entity classification and number. Federal agencies use the number to identify and regulate each business.
No, they are actually the same thing – your tax ID number and employer identification number (EIN) are both the same, though they may be labeled differently depending on the form.
A Tax Identification Number or TIN is used by the IRS to differentiate the numbers it uses for tax purpose.
Numbers used for identification are:
While almost all businesses require a federal tax ID, there are some exceptions. If you own a sole proprietorship without employees (not including independent contractors) or have a nonprofit organization without traditional employees, you may not need a tax ID.
Sole Proprietors can use their personal SSN to identify the business. As the business owner, you do not need additional numbers since your income from your business along with your expenses are passed through to your personal tax return.
Businesses that fall under this categorization of entities will use the EIN even if no employees are listed.
There is an exception to this rule. A single member LLC will use the Social Security number of the owner, NOT the Tax ID/EIN.
It is highly advisable that even tax-exempt organizations file for a tax ID number. Regardless of whether the institution has employees, there may be circumstances when the EIN is needed.
No. Federal and dtate tax reporting are conducted separately.
A state tax ID is solely for state tax reporting. A state tax must be paid for any state that a business may have offices or employees. It is feasible that a business could have multiple state tax ID’s, thus making it a difficult identifier. Only one federal ID will be issued and it supersedes that of the state.
There is no fee to apply for a Federal Tax ID, however you may be required to pay for entity classification at the time of application.
No. This number is unique to a single business. Even if a business requests a change, the number will not be re-assigned to a new business.
If you are in need of a tax ID number, you can print out the IRS form SS-4 and fill it out. We do recommend speaking with a small business CPA in Garner prior to submitting your form. It is best to make sure that your documentation is recorded properly from the start. If a change is needed, it could take weeks before the change is accepted.
Selecting the right business entity for your company can be confusing, and making a mistake can have a drastic impact on your tax obligation. An experienced CPA can guide you through your business entity classification to make sure you select the right federal ID for your company.