Starting a new business venture is an exciting journey, but it often comes with a maze of legal requirements and paperwork. One crucial aspect of setting up your Limited Liability Company (LLC) is obtaining an Employer Identification Number (EIN). At The Law Dictionary, we understand that navigating these processes can be overwhelming. That’s why we’ve created this comprehensive guide to help you understand and obtain an EIN for your LLC.
We at The Law Dictionary have simplified complex legal jargon into clear, actionable insights to help you understand the process of getting an EIN when starting your LLC. Our goal is to provide you with the knowledge and confidence to tackle this important step in establishing your business.
What is an EIN?
An Employer Identification Number (EIN), also known as a Federal Employer Identification Number (FEIN) or Federal Tax Identification Number, is a unique nine-digit code issued by the Internal Revenue Service (IRS) to identify business entities. Think of it as a Social Security number for your business. This identifier is essential for various business operations, including filing taxes, opening bank accounts, and applying for business licenses.
Is my business required to have an EIN?
While not all businesses are required to have an EIN, most LLCs will benefit from obtaining one. If your LLC has more than one member or if you plan to hire employees, you’ll need an EIN. Even if you’re a single-member LLC, we strongly recommend getting an EIN for several reasons.
First, having an EIN can help protect your personal information. Without one, you’ll often need to use your Social Security number for business matters, which can increase your risk of identity theft. Additionally, many banks require an EIN to open a business account, and you’ll need one if you want to establish business credit or apply for certain licenses and permits.
Moreover, if you anticipate growth in your business, such as hiring employees or bringing on partners in the future, having an EIN already in place will save you time and hassle down the road. It’s better to be prepared than to scramble for an EIN when an opportunity arises.
How to prevent your EIN from being denied
When applying for an EIN, there are a few common pitfalls that can lead to a denial. One of the most frequent issues is choosing a business name that’s not distinguishable from existing entities. While your state may have approved your LLC name, the IRS considers EINs on an international scale. To avoid this problem, consider using a more formal name for your EIN application, such as including the last names of members, and then operating under a DBA (“doing business as”) name for your day-to-day operations.
Another potential issue arises with online applications. If the person designated as the “responsible party” on the application is already an agent for a different approved online EIN application, your new application may be denied. In this case, we recommend applying through alternative methods, such as mail, phone, or fax. This simple change in application method can often resolve the issue and get your EIN approved.
How do I apply for an EIN number?
Applying for an EIN is a straightforward process that you can complete yourself. Here’s a step-by-step guide to help you through the application:
- Choose your application method: The fastest and most convenient way to apply is online through the IRS website. However, to be eligible for online application, your business must be located in the United States or U.S. Territories, and the responsible party must have a valid taxpayer identification number. If you don’t meet these criteria or prefer a different method, you can apply by mail using Form SS-4.
- Designate the responsible party: This should be a natural person, not another entity, who manages or directs the LLC’s funds and assets. For most small LLCs, this will be the founding member or manager.
- Gather necessary information: Before starting your application, collect all required information. This includes your business name, mailing address, type of entity, reason for applying, number of anticipated employees, and principal business activity. Having this information ready will make the application process smoother and quicker.
- Complete the application: If applying online, you’ll have 15 minutes to complete the form before it times out. We recommend filling out a paper Form SS-4 first as a practice run to ensure you have all the information at hand.
- Submit and receive confirmation: For online applications, you’ll receive your EIN immediately upon submission. If you apply by mail, expect to wait about four weeks for processing.
FAQs
How much does it cost to get an EIN?
Obtaining an EIN is completely free when you apply directly through the IRS. While some services may charge a fee to assist with the application, these costs are for their service, not for the EIN itself. We recommend applying on your own to avoid unnecessary expenses.
Is there a downside to getting an EIN?
In our professional opinion, there are no significant downsides to obtaining an EIN for your LLC. The benefits, such as increased privacy protection and easier access to business services, far outweigh any potential drawbacks. It’s always better to have an EIN and not need it than to need one and not have it.
What is the quickest way to get an EIN?
The fastest method to obtain an EIN is through the IRS’s online application system. If you meet the eligibility criteria, you can receive your EIN immediately upon completing the application. This instant access allows you to start using your EIN for business purposes right away.
