As individuals use their Social Security numbers for personal tax purposes, business entities must generally use a federal tax ID number, also known as an employee identification number (EIN). There are a few situations in which you need to obtain an EIN for your business, even if you have an LLC.
Single Member LLCs
This means that you are the sole member in your LLC. If you are also running your business from home and you choose to report your business as a sole proprietorship (“disregarded entity”), you don’t have to obtain an EIN. Taking into consideration that IRS does not recognize LLCs as business entities, a sole proprietorship is the default option for LLCs with one member. In this case, the owner can use his or her Social Security number to report profits and losses on their personal income tax statement and an EIN is not required.
There are a few particular situations in which you will need an EIN even if you are the sole member in an LLC and those are:
- You are the only member in the LLC, but you have employees
- You are the only member in the LLC, you have no employees but you are planning to hire.
- You choose to report your business as a corporation instead of a sole proprietorship.
- You are participating in a Keough retirement plan.
- You are paying taxes to the Bureau of Alcohol, Tobacco, Firearms and Explosives.
Other Reasons for EINs for Single Members
Another reason, and a very good one, that might convince you to want an employer identification number is the security of your data. Using your Social Security number on documents that you send to your clients or vendors can open you to identity theft. An employee identification number is not linked to your credit cards or bank accounts and it can offer you more security than using the Social Security number in your business transactions and documents.
An EIN is also good for your business image and will help you increase your business’ credit rating. Some clients might require it to pay you. You might need it to open a bank account for your LLC and if you need to file for bankruptcy, you will surely need it. It is very easy to obtain, and even if it is not necessary, an employer identification number can be very useful for you and your LLC.
Besides the LLCs with one member reported as sole proprietorships, all other LLCs need to obtain an EIN. This means LLCs with more than one member reported as partnerships or LLCs with one or more members reported as corporations.
Apply for an EIN
Either you need an EIN for your LLC or you are thinking about using it as a tool to help your business grow, obtaining an EIN is an easy process. Applications for tax ID numbers for LLC can be made online, by phone, fax, or mail. For applications by mail or fax you need to use the SS-4 form from the IRS. For the on-line application, the on-line form has the function of your application form.