An Employee identification number or federal tax id number is the unique nine-digit number that is assigned to a business and helps the government to identify the business for the purpose of taxation. This number is required by all businesses who pay tax on their products and services. Tax id number is also required if your business has employees working in the United States.
Most of the businesses require EIN number to carry on their business. In fact applying for tax id is one of the foremost tasks you have to undertake, the minute you start planning for your business. Though sole proprietors do not need the tax id, it is in their best interest to apply for it as they will be required to submit their social security number, in the absence of EIN.
These are some factors that make having an EIN compulsory
- Having employees
- Your business is registered as Partnership or a corporation
- Your business files any type of tax returns like employment, excise, alcohol, tobacco or firearms
- You bought a Keogh plan
- You have business with trusts, estates, real estate mortgage investments, not-for-profit organizations, cooperative societies or plan administrators.
- Wholesale distributors ask for either EIN or state tax id number from their retailers. Having these tax id numbers improves your creditability with the suppliers and helps you to get goods at lower costs.
International companies who do not have employees in the United States and just ship products to the country do not require EIN number, but if the company collects any taxes from the country, it is mandatory to apply for EIN.
If you plan to open an online business, it is better to consult the IRS officials to know about the tax liability of your business. Applying for EIN number is free and can be done online. Visit the website of the IRS and download the application form for tax id. You will also be required to file a fictitious name statement, stating that you and your business are same. Some states also require online businesses to obtain a license or permit before starting the business.
Some cities and states may require additional paperwork before starting an online business along with obtaining the EIN number. It is better to consult other business owners or government offices in your area to get a complete list of documents required for starting an online business.