Owning a business is a dream of many people, but few truly understand that while you may look at your personal enterprise as an extension of yourself and your dreams, it is in reality a separate entity and requires its own tax classification. That’s why the IRS will usually issue a business a free EIN number, known as a Federal Tax Identification Number. Its sole purpose is to give businesses their own unique identity. Still, only businesses that meet certain criteria are required to have an EIN number so before you take up valuable time applying for one it pays to do some checking first.
When You Require an EIN Number
There are several different types of numbers issued by the IRS for businesses. Those businesses that expect to or already have employees, that exist as a corporation or a partnership, that plan to not pay income tax for a non-resident alien, that expect to file excise, employment, or Alcohol, Tobacco, and Firearms tax returns, or that come under a Keogh plan will need to get a free EIN number.
You will also need such a number if your business has any involvement with trusts, individual retirement accounts, or any type of organization that does not have to complete Business Income Tax Returns. Other organizations that fall in this category are plan administrators and those that work with estates, non-profit organizations, farmers’ cooperatives, or real estate mortgage investment conduits.
If your business is does not have direct involvement with any of these types of activities, then chances are that you won’t need to make an application for a free EIN number.
When a New EIN Number Is Needed
In a sense, the EIN number is like social security number, because you should expect it to remain the same for the life of your business. However, there are times when you may have to reapply and get a new number. This is only necessary if the ownership or structure of your business has gone through a major change. Basically, you can expect to have to reapply for a new number if you are a sole proprietorship that is subject to a bankruptcy proceeding, that is expecting to take on a new partner, planning to incorporate, or you inherit an existing business that you plan to operate as a sole proprietorship.
Corporations are expected to reapply if they receive a new charter from the Secretary of State, become a subsidiary of another corporations using a parent company’s EIN, there is a change in status to a partnership or sole proprietorship, or there has been a merger of some kind.
You won’t need a new number for basic changes in your business. For example, changing the name of a business does not change its structure so a new number won’t be necessary. The IRS has many guidelines that determine if you need to get a new EIN number so it would be wise to visit their government website for more detailed information about how and when to apply for a new number.