Retail online sales businesses must be located in the US in order to qualify for an EIN. The company may be of any size, from a sole proprietorship to a multinational corporation with thousands of employees. The business owner must also possess an existing tax ID (TID), like an SSN, to apply for an EIN. E-commerce merchants often run their stores all by themselves. However, they’ll still need an EIN to file taxes if they pay themselves like an employer or contribute to a self-funded pension plan, formally known as a Keogh plan.

The number of US users in the e-commerce market is expected to increase by 60 million, or 21.94 percent, between 2024 and 2029. This growing market creates a strong incentive for entrepreneurs to start a business in online sales. Registering an online business is a multi-step process that often includes obtaining an employer identification number (EIN).

This post discusses eight of the benefits that an EIN provides for a retail/online sales business and the process for obtaining one.

Benefits of an EIN for Retail, Online Sales, and e-commerce Businesses

The specific benefits of an EIN for an e-commerce business generally relate to separating a business’s finances from the owner’s individual finances, especially when it comes to taxes. Obtaining an EIN isn’t always legally required for a business, but these benefits still make it a good idea to do so and it’s easy to apply for an EIN online. The following five benefits of an EIN are some of the most significant for an e-commerce business.

1. File business taxes

Businesses in the United States are generally required to file a tax return, even if they fail to earn a profit. If they are profitable, they’ll usually need to pay taxes. An EIN can facilitate this process significantly by allowing the business owner to perform some of these steps online, including the generation of documents like W-2s for employees for whom the business withheld taxes. In addition, an EIN allows the owner to pay taxes online.

You should obtain an EIN before you need to pay your taxes. Otherwise, the IRS requires you to submit documentation informing them that you don’t yet have your EIN and when you expect to receive it. Failure to do so can cause the IRS to reject your submission and subject you to late payment penalties.

In addition, an e-commerce business may be required to register as a drop shipper for the purpose of paying state income taxes in some states. An EIN can facilitate this process and help ensure compliance with tax regulations for those states.

2. Improve vendor relations

An EIN for online sales can facilitate relationships with vendors, which is especially important for online businesses. These vendors may include a variety of other business entities, including wholesalers, retailers, and other suppliers. For example, e-commerce businesses must work closely with drop shippers, who typically require an EIN before they issue or process payments from your e-commerce business. An EIN is particularly important for drop shippers because they must deal with the tax regulations in many different jurisdictions. As a result, it’s easier to simply require an EIN from all of their clients, regardless of the EIN requirement for a particular jurisdiction.

3. Aid foreign businesses

The importance of an EIN is especially great for non-US business owners who lack an SSN, US passport, or Individual Taxpayer Identification Number (ITIN). In these cases, an EIN is essential for gaining access to the best drop shippers in the US. International entrepreneurs without any US ties can still obtain an EIN from the IRS, allowing them to obtain benefits like a business line of credit or bank account before they even have an SSN. This approach allows foreign citizens to get a head start in making sales to US customers, which is key to becoming competitive in e-commerce.

4. Charging sales tax

A business that sells products or services online will probably need to charge sales tax on at least some of its transactions, although the laws on sales tax vary greatly by state. Collecting and remitting sales tax requires a business to have a permit, which needs a TID like an EIN.

5. Protecting your identity

Using an EIN for your retail business rather than your own SSN as a TID greatly reduces the risk of your SSN becoming compromised. Identity theft is rising rapidly due to the increasing value of SSNs and other types of Personally Identifiable Information (PII). The more often you provide your SSN to organizations like banks, suppliers, and vendors, the greater the risk that it will be compromised. This rule applies even when the company in question is legitimate, as it could be the victim of a data breach.

While the theft of EINs also occurs, it isn’t nearly as useful to identity thieves since an EIN is associated with a business. In comparison, an SSN represents an individual, making it easier to obtain access to that person’s personal money.

6. Improve your reputation

E-commerce businesses are particularly dependent on their reputation to remain successful. The large number of competitors in this sector means that a company has to work hard to stand out. Establishing the reputation of your business takes time, but an EIN can accelerate this process by showing partners that you take your business seriously. You must generally provide them with a TID so they can issue a Form 1099 for your tax return. Providing an EIN instead of your own SSN helps these partners think of your business as a separate legal entity from yourself, even when it’s a sole proprietorship.

7. Obtain business credit

E-commerce businesses routinely need additional funding when they grow quickly. An EIN can help your business obtain a line of credit (LOC) more easily by allowing it to establish its own credit history. These creditors prefer to see that a business has its own history of paying bills and showing fiscal responsibility rather than evaluating the business owner’s personal credit history for a business loan.

8. Open a business bank account

Lenders often require a business to have its own bank account so they can review its transaction history before approving a loan. In particular, they want to verify that your business account receives regular deposits that you could use to make loan payments. As a result, you should ensure that the only funds deposited or withdrawn from this account are for commercial purposes.

Banks frequently need an EIN and other information to open a corporate bank account. For example, you should also be prepared to provide the bank with the date your company was founded, its physical location, and personal details about yourself.

Summary

An EIN provides benefits for an e-commerce business even when it isn’t legally required. In addition to protecting your personal assets from your business liabilities, an EIN is also an effective means of enhancing its credibility. It’s fast and easy to obtain one, so there really isn’t a reason not to have an EIN. The sooner you do so, the sooner you can start using it to grow your online store.

The mental health field is a growing industry. According to the U.S. Bureau of Labor Statistics, jobs in this field are expected to grow faster than the three percent average across all occupations between now and 2032. In fact, some specialties falling under this occupational umbrella are projected to grow by a whopping 18% through 2032.

The IRS requires all businesses, regardless of industry or size, to pay taxes. Corporations, S-Corporations, LLCs  and certain other small/medium-sized businesses are mandated to obtain a tax ID, which is otherwise known as an employer identification number (EIN). Single-person companies, such as many counselors and therapists, with no employees can opt to utilize their Social Security number (SSN) instead.

1. An EIN Provides Stronger Protection from Identity Theft

According to the latest figures published by the U.S. Bureau of Justice Services, in 2021, one in 10 people became victims of ID theft in the prior 12 months, which equated to approximately 24 million people. Furthermore, roughly one in five people (22%) had previously been victims of ID theft.

Counselors and therapists operating without an EIN will be obligated to provide their SSN on any tax-related documents. Keep in mind, that completing insurance forms requires a tax ID, and out-of-network billing means your SSN will need to go on your client’s superbill, which means more entities than you’d probably like will have access to your personal tax ID.

Even perhaps riskier is due to the recent Transparency in Coverage rule, your SSN could potentially be made public since you will need to include specific information to comply.

2. Simplifies the Process to Open a Business Bank Account

Independent contractors, such as counselors and therapists, are theoretically able to use their SSNs to open a business bank account, but this isn’t always how it works. Most banks and credit unions will require business owners to possess an EIN before they will allow them to open a business bank account.

Some professionals are tempted to simply use their personal accounts for their practice, but this is a bad idea because business and personal funds end up commingling and this can lead to audits and other problematic issues. In almost every situation, it is better to separate personal and business bank accounts.

Additionally, if you have registered your private practice as an LLC, without separation of personal and business funds, you risk losing the legal and financial protections an LLC structure provides.

This can be confusing, because mental health professionals who do not have employees and have not registered their business as a corporation are not required by the IRS to obtain an EIN. However, if the following conditions apply to you, then yes, you would need to apply for a business tax ID.

• You hire one or more employees
• Your company is registered as a partnership
• Your company is registered as a corporation
• Your company is registered as an LLC
• You opened a Keogh plan for retirement

3. Positions Your Practice for Expansion

Many mental health professionals work remotely or out of their homes. Having an EIN positions the practice to be able to expand if it becomes necessary.

You Can Hire Employees

While you might work solo at the moment, there may come a time when you need to hire a receptionist, bookkeeper, or other individual to help you run your practice. By having your EIN already in place, you can hire as soon as the need is evident and not delay while you apply for your tax ID.

You are Able to Get a Business Credit Card

Small businesses can apply for business credit cards to help them pay for the everyday items a company needs. While not all creditors will require an EIN for these cards, some do. This will not only expedite the credit card approval process, it is also a good opportunity to segregate your personal and professional credit scores. This is advantageous in the respect that if your practice runs into financial problems, it won’t affect your personal credit score (and vice versa).

Your Business Gains Better Access to Funding

Having an EIN also opens up financial opportunities so you can expand. For instance, if you need larger office space, new equipment, or funding for other needs to grow your practice, it will be far easier to get the money to support business growth.

When you have an EIN already in place, you’ll have established your practice as an individual entity with its own separate credit rating, separate from your personal one. This means when you apply for a business loan, the application process will be quicker. Additionally, if you already have well-established credit for your practice, you may have access to more favorable loan terms.

4. Elevate Your Professional Reputation

As a private practitioner, it can be difficult to manage everything yourself. While you may not have a need to hire employees, you may need to utilize the services of virtual assistants, accountants, cybersecurity services, or an emergency service line.

Anyone you contract with will need a tax identifier to use on tax forms. Using your SSN can give the appearance of looking amateurish and some businesses might be hesitant to work with you. Furthermore, if your SSN is published for the public to see under healthcare transparency laws, clients will quickly see you do not have a professional-looking EIN.

Additionally, should you decide to convert your sole proprietorship to an LLC (which also looks more professional), you will need an EIN, so it’s beneficial to already have one in place to use on your business structure registration.

5. Ability to Open Certain Types of Retirement Accounts

As a self-employed private practitioner, you will not have access to an employer-sponsored retirement plan. To set yourself up for when you decide to retire, you will need to set up your own retirement funding. To set up an individual 401(k), an EIN is required by the federal government. If you prefer to establish a SEP-IRA, you do not need an EIN, although some financial institutions will require you to have one.

Writers may develop content for a variety of media, with online content currently experiencing the greatest growth. These writers can work from virtually any location, provided they can access the internet. Many writers are self-employed as independent contractors, commonly known as freelancers. As a result, they can receive the benefits of an EIN for freelance writing.

An Employer Identification Number (EIN) is a unique nine-digit number that the Internal Revenue Service (IRS) issues to business entities operating in the United States, typically for the purposes of reporting employment taxes.

Freelance writers need to pay taxes on their income, like any other occupation. As independent contractors, they need to share a tax identification number (TIN) with anyone who receives writing services. The TIN has traditionally been the writer’s own Social Security Number (SSN), but an EIN offers numerous benefits over an SSN.

Do I Need an EIN as a Freelance Writer?

Freelancers often wonder if they need to obtain an EIN and how it will affect their business finances. For example, clients might ask you to provide one for tax purposes if you’ve worked under 1099 for a long time. The IRS requires an EIN if you receive income from sources like farmers’ cooperatives, real estate investments, and trusts. You also need an EIN if you have employees, which freelance writers rarely do. As a result, an EIN for freelance writers is usually an option for their occupation rather than a legal requirement. However, it does provide the following benefits as compared to an SSN.

1. Identity Theft Protection

The risk of identity theft is particularly high when you provide your SSN to anyone and is an increasingly common occurrence. The growing value of personally identifiable information (PII) gives malicious actors a strong incentive to obtain SSNs, often on a large scale. Data breaches are often more a matter of when they will occur rather than if they will occur. In addition, continuing technological advances mean that an organization will always be vulnerable to future threats, no matter how well they’re currently protected.

Obtaining an EIN avoids the need for freelance writers to provide their SSN to anyone they contract with to write. Essential tax documents like 1099s, W-9s, and invoices require some type of TIN, which puts writers at risk when they use their SSNs. In addition to a client suffering a data breach, some job offers are scams specifically designed to steal SSNs and other forms of PII.

While having your EIN exposed is certainly undesirable, it’s nowhere as risky as a compromised SSN. It’s, therefore, preferable to list your EIN on documents that clients and employers can access.

2. Separate Individual and Business Finances

Freelance writers also benefit from using an EIN because it allows them to separate the finances of their business from their individual finances. This is especially true for freelancers who have registered their business as a single-member LLC, which is specifically designed to provide its owner with financial and legal protection.

Freelancers who blur the lines between business and individual transactions are at increased risk for financial problems, primarily those related to tax payments. An EIN helps keep these transactions separate by allowing freelancers to file tax returns on their business with the EIN while continuing to use their SSNs for individual tax returns. If you’re self-employed as a freelance writer, using an EIN to pay your business taxes separately from your personal taxes also helps avoid late or incorrect filings that can incur penalties and helps avoid mistakes when filing your taxes.

Freelance writers often do their own accounting and bookkeeping, especially when they’re just starting out. The separation of business and personal finances allows an EIN to help them track business expenses and other transactions more easily. This advantage also reduces the effort needed to declare these expenses as deductions on your tax returns.

An EIN is particularly useful for freelance writers who use their personal property for business purposes. These include maintaining an office at their residence, along with a computer system. In addition, journalists routinely use their own vehicles for travel when researching a story.

3. Boosts credibility

Freelance writers often struggle with clients taking them seriously since they usually operate as sole proprietors rather than legal business entities. They can often facilitate the process of building the business and brand reputation by supplying clients with an EIN instead of an SSN to comply with tax requirements. An EIN tells clients that your business has already been vetted by the IRS.

This practice improves the writer’s credibility by bolstering the perception that they’re a business owner instead of an individual. For example, an EIN can often accelerate the process of getting a loan, since it helps show lenders that you’re serious about performing freelance writing as a business.

4. Ability to Obtain a Business Bank Account

Opening a separate account for your writing business adds credibility to your writing business by separating personal and business finances. In addition, maintaining separate accounts allows you to view your business expenses, income, and transactions more easily, which is particularly useful when paying taxes. Banks may require business owners to provide an EIN before allowing them to open a bank account for their business, although some will do so with an SSN. This requirement varies greatly based on your business structure and financial institution, so you’ll need to check with your own bank for more information.

5. Establish Business Credit

Establishing and building business credit is another benefit for freelance writers who obtain an EIN, which is typically required to apply for a business credit card. Once the application is approved, writers can begin building their business’s own credit history separately from their own. Businesses can often obtain credit and loans with better terms than individuals. The separation of business and personal credit also means the credit standing of one entity won’t affect the other.

6. Establish Retirement Investment Accounts

Once a writing business begins earning a regular income, it’s time for writers to begin planning for their financial future. Writers who obtain an EIN can invest in their retirement and gain tax advantages with plans like a Solo 401(k), SEP IRA, and SIMPLE IRA. In addition, financial institutions often require an EIN for certain types of accounts, especially retirement accounts.

7. Retain the Ability to Hire Employees

Freelance writers rarely need staff, but it’s better to already have an EIN than to apply for one after suddenly discovering that they need to hire an employee. This possibility can occur when a writer’s popularity suddenly increases to the point that their business has significant administrative overhead. Additional reasons for needing staff include accounting and fact-checking. In some cases, writers with more work than they can handle may subcontract the overflow to another writer. The demand for a freelance writer’s services is often highly volatile, making it crucial to respond quickly to these changes by hiring staff as needed.

In addition, hiring employees when you have an EIN avoids the need to provide your SSN on the onboarding paperwork and provides a dedicated account for paying payroll taxes. Furthermore, it allows you to withhold employee taxes and contribute to pooled funds like Social Security and Medicare.

8. Create Business Profiles with Payment Applications

Freelance writers typically receive payments through platforms like PayPal or Venmo, especially those who write online content. These applications simplify the billing process, but the IRS also requires them to report payments when a customer’s gross sales exceed $600. This reporting requirement for federal income taxes is new for 2024 and may change in subsequent years. Furthermore, some states have their own reporting requirements for state income taxes, which may be based on earnings, number of transactions, or both. Payment platforms then issue a form 1099-K to qualifying accounts, and an EIN can help facilitate this process.

Conclusion

The Bureau of Labor Statistics (BLS) reports that the job growth rate for writers is expected to average five percent between 2023 and 2033, which is about average for occupations in the US during this period.

Starting a writing business initially requires you to find clients who need your services, meet their needs, and grow your clientele. You’ll also need to maintain the technology needed to send content and correspond with your clients, especially if you’re a freelancer working from home.

Once your business is a success, you should consider obtaining an EIN for it, even in cases where it isn’t legally required. An EIN’s ability to protect you from identity theft is especially helpful for freelance writers, who typically work from home. These writers correspond with clients via the Internet as their primary means of communication, making it critical to avoid disclosing personal information like their SSNs. The separation of business and personal finances is another benefit that makes an EIN attractive to freelancers, especially for the purpose of protecting their personal assets from the business’s liability. This separation also helps to simplify tax situations, which are usually more complex for businesses than individuals.

Coffee shops are a great business for entrepreneurs to start in the United States. Many models exist for this type of business, including your own café, franchising an existing brand, and a mobile coffee shop. You also have many options for locations, such as leasing a separate space or leasing a kiosk in a retail establishment like a hotel or mall. Like all businesses, coffee shop owners must pay taxes on their profits, which requires a tax ID (TID). This identifier may be your own social security number (SSN) or obtaining an employer identification number (EIN) online. This article discusses the many advantages of using an EIN to file taxes for your coffee shop, even in cases where it isn’t legally required.

The US coffee market is the largest in the world and thus highly profitable. Statista reports that Americans drink an average of 1.87 cups of coffee each day, or about 1.6 billion kilograms of dried coffee beans. The market value of the US coffee shop industry was $45.8 billion in 2022, up from $36 billion in 2020. This market experienced a temporary but drastic drop at that time due to the coronavirus pandemic, resulting in mass closures of coffee shops and similar businesses intended to slow the spread of the virus. The complete recovery of the coffee market within two years shows its resilience in the US.

Benefits of EINs for Coffee Shops

Using an EIN to report taxes for your coffee shop business instead of your SSN offers many advantages, including the following:

• Meet legal requirements
• Protection from identity theft
• Business bank account
• Business credit card
• Build credit
• Obtain permits
• Establish credibility

1. Meet Legal Requirements

In most cases, an EIN is legally required to operate a coffee shop. If you file business taxes without an EIN, and your business is required to have one, it may be subject to fines and other financial penalties. In addition, using an EIN to file taxes allows you to declare deductions for business expenses more easily. In the case of a coffee shop, these include ongoing purchases of supplies.

The most common reason for a coffee shop to require an EIN is when it has employees. Coffee shops are customer-facing businesses, so they typically require employees such as baristas, cashiers, and other support staff. Furthermore, coffee shops often keep long hours, requiring more staff. As a result, an EIN is usually a requirement for coffee shops. Even in cases where an EIN isn’t legally required, a coffee shop should still obtain an EIN to take advantage of its other benefits.

A sole proprietorship generally doesn’t require an EIN, even when the proprietor is legally an employee of the company. However, other circumstances can require an EIN when the company has no other employees. For example, a business that’s registered as an LLC, Corporation or Partnership always requires an EIN, regardless of other conditions. In addition, a sole proprietorship must have an EIN when the owner contributes to a retirement fund like a Keogh plan or individual 401(k) plan.

2. Protection from Identity Theft

An EIN protects any business from identity theft, including coffee shops that are sole proprietorships. This benefit is especially important today when this crime is growing so quickly. The Federal Trade Commission (FTC) reports it logged over one million reports of identity theft, which often led to other crimes like financial fraud.

Business owners who don’t have an EIN for their coffee shop must use their SSN instead. These uses include tax reporting and identification on documents for entities that the company does business with, such as lenders, suppliers, and vendors. A data breach in any of these organizations can compromise those SSNs, typically on a large scale. Using an EIN for these purposes helps keep a business owner’s SSN secure. While a compromised EIN is certainly undesirable, it’s not nearly as big of a problem as a compromised SSN.

3. Business Bank Account

Coffee shops will typically need to maintain a separate bank account from their owner’s account. In addition to the need to pay employees and other ongoing expenses, coffee shops also still derive a significant portion of their revenue in cash. Many banks and credit unions require an EIN to open a bank account for business, based on each financial institution’s policy. Obtaining an EIN in advance allows you to open a business bank account, regardless of whether an EIN is required.

Another advantage of maintaining separate bank accounts for a coffee shop is that it creates a distinction between the business and its owner, especially in terms of financial accounting. Failing to do so can create problems at tax time, especially for coffee shops operated as a single-member LLC. This business structure requires a clear line between business and personal accounts to provide the financial and legal protection that an LLC offers.

4. Business Credit Card

Virtually all businesses need credit to survive, but it’s especially important for small businesses like coffee shops. Even in cases where your regular orders are paid for, these businesses routinely run out of essentials between scheduled orders. As a result, an owner could suddenly need to make an unexpected purchase from a retailer. Paying with a credit card is highly convenient under these circumstances, if not an outright necessity.

Most credit card issuers require an EIN to approve a business for a credit card, although this isn’t always the case. However, an EIN maximizes the number of issuers that will consider your application. In addition, separate credit cards further clarify the distinction between you and your coffee shop, allowing you to maintain separate credit ratings between the two legal entities.

5. Build Credit

A small business like a coffee shop often needs to expand quickly, typically when its customer base increases. An existing line of credit is often insufficient to cover such a large expense, requiring a business loan. A strong credit rating is essential for a business to obtain favorable terms, which is especially important considering the size of a typical business loan.

For example, the owner of a growing coffee shop business may need to open a second location to serve its entire customer base. Expansion could also include leasing a van to provide delivery services, remodeling the existing storefront, hiring more staff, or buying additional equipment. An EIN for your coffee shop combined with a good credit rating could make the difference between obtaining a business loan on favorable terms and not being able to get a loan at all.

6. Obtain Permits

A coffee shop usually needs multiple permits, depending on its jurisdiction and business model. Most of these permits require an EIN, including a business license. This permit allows the coffee shop to legally operate in that jurisdiction. Most municipalities have a health department that requires businesses serving food and beverages to obtain a permit. This documentation shows that the establishment complies with local health codes.

A food service license allows a coffee shop to prepare and serve food. This business might require more than one type of food service license, depending on factors such as its physical size and menu. For example, a coffee shop that only sells coffee will likely have lower licensure requirements than a full-service restaurant.

Municipalities generally require a building permit for most structures that would house a coffee shop. A finished building should already have this permit, but you’ll need to obtain one if you’re constructing a new building or remodeling an existing space. In addition, some municipalities require a separate permit to display business signage. Furthermore, most states require a sales tax permit, also known as a seller’s permit, to collect sales tax on business transactions.

7. Establish Credibility

An EIN provides a coffee shop with greater credibility than using your SSN, as it shows the IRS has already vetted your business. It demonstrates to vendors and suppliers that you take your business seriously rather than treating it as a hobby or side hustle. This advantage is especially important when starting your business, as a reliable supply chain is crucial for meeting the demands of a growing coffee shop. In addition, an EIN can help build your brand’s reputation with customers.

Summary

Starting a new business is an exciting prospect that has the potential to be highly profitable in the US. This process involves a lot of hard work, especially when you’re its only employee. You also need to select the right business structure for your coffee shop, which can directly affect whether you need to have an EIN. In the case of a coffee shop, an EIN will probably be legally required. Even if it isn’t, you should still obtain one to realize its benefits.

Real estate is an exciting field for many, especially due to its flexibility, where people can opt to work full-time or part-time as a Sole Proprietor, LLC or S-Corporation and choose their own schedules. Others do it because they enjoy helping people realize their lifestyle dreams through sales or rentals. Still, others lean more toward purchasing and/or managing investment properties as a landlord and using them as an income source.

Any of these options are a great way to work full-time or to supplement your income. While some working in real estate may be employees for a larger corporation, the National Association of Realtors reports 87% of its membership are classified as independent contractors. Consider that this figure doesn’t take into account the many real estate agents who are not NAR members but operate as independent contractors rather than as employees of the agencies they are affiliated with. An EIN can make life infinitely easier for professionals such as these – including you.

1. An EIN Provides a Layer of Protection to Avoid Identity Theft

Identity theft is a persistent problem plaguing both the U.S. and abroad. To illustrate how problematic it has become, consider the fact that fraud cost American adults a staggering $43 billion in 2023.

As a professional operating in the real estate sector, you deal with many people and entities. This means anytime you need to supply a tax ID, you’ll have to give your SSN. ID thieves are constantly finding ways to exploit personally identifiable data (PII) and, the more your SSN is out there, the higher the risk of it being compromised.

Getting an EIN means you can provide that number instead of the SSN, putting a layer of protection between you and the identity thieves.

2. Gives Financial Separation for the Real Estate Professional and the Business

Individuals who sell or buy homes, rent homes, or otherwise engage in real estate actions (e.g. investors) are typically independent contractors. A lot of financial transactions happen in these professions and, if the individual does not have an EIN, this means using their personal accounts (with their SSNs). It also means they’ll end up commingling funds, which can potentially lead to tax issues and other problems.

Additionally, if the real estate professional operates their business as a single-member LLC, they will need to separate their personal and professional transactions. If not, they risk losing the financial and legal protections an LLC structure provides them, along with running into tax-related problems with the IRS.

3. Positions You to Grow Your Business

The real estate industry, like some others, tends to ebb and flow. If the market has an upturn, you will want to be prepared to handle volume. This means you might need to hire employees to handle scheduling appointments, bookkeeping, or other administrative tasks. You also might want to form a partnership or expand into a multi-member LLC or a corporation.

In any of these scenarios, an EIN is required. By obtaining one as a sole proprietor or single-member LLC, you will be well-positioned for the future if you need to hire employees, get a business loan, or otherwise expand. With an EIN, you’ll already have your bases covered.

4. You Open Your Options for Retirement Savings

As an independent real estate agent, investor, or landlord, you aren’t invested in a pension or employer-sponsored 401(k) plan, so you’ll have to plan for retirement yourself. While you can open a SEP-IRA account with your SSN, your bank may require an EIN. If you decide to build your retirement funds into an individual 401(k), you legally will need to use an EIN, so by applying early, you’ll have it ready to go.

5. Increase Your Professional Credibility

Individual contractors, such as real estate professionals, who use their SSNs as tax identifiers tend to look “amateurish.” If you want to be taken seriously by other professionals you work with, an EIN for your real estate business is a much better look, and it can help you elevate your level of credibility and professionalism. Additionally, it demonstrates you take your business seriously and have separated your personal and professional financial transactions.

6. Can Open a Business Bank Account

The majority of banks require business owners to obtain an EIN before they allow them to open a business bank account. In some cases it’s possible, but why take the chance? It is easier to go for the sure thing and have the EIN in place so you can open the business bank account as soon as you need it.

Having separate business and personal bank accounts also makes it easy to view your income, expenses, and transactions for your business, since you won’t need to sort through your personal transactions.

7. Gain Access to Open a Business Credit Card

After you complete the process of obtaining an EIN, you can work on building your business’s credit standing. This typically begins with opening a business credit card. This way, you separate your personal and business credit, so the two are calculated completely independently of one another.

After you begin to use your designated business card, you can start the process of building credit for your company. Over time, with good standing, you’ll be able to earn a high credit rating, giving you better access to more favorable loan opportunities from creditors. Alternatively, if your business struggles, your personal credit score won’t be hurt.

8. Applying for an EIN Elevates Your Business Standing

Your EIN goes a long way toward elevating your standing in the real estate community. Once clients, banks, and others you work with see you’re serious about establishing your business, they’ll look at you as a professional, instead of a hobbyist or amateur.

Obtaining an EIN might seem like another detail not worth pursuing when you have other pressing matters and deadlines to meet with real estate transactions, but this is something you shouldn’t put off indefinitely. Whether you need one or not really shouldn’t matter much because the benefits you get after receiving your EIN are well worth it.

Self-employed consultants come in all different types of forms, spanning many industries. Many consultants opt not to work for large firms, but instead choose to operate solo, either from an office or from their homes. The precise number of private consultants in the U.S. is hard to narrow down, but considering approximately 16.5 million people in the country are self-employed, it is fair to say a good percentage of them are likely to lend their expertise to other individuals and organizations.

All businesses, large and small, must pay taxes. To do so, a tax ID must be used. Small one-person operations can choose to use their Social Security number (SSN), but most will need a business-specific tax ID called an employer identification number (EIN). In this article we will answer What is a tax ID/EIN and the many benefits of obtaining one for your business.

1. An EIN for Professional Consultants Offers a Layer of Protection from Identity Thieves

Did you know having an EIN could offer protection against your SSN being exploited by identity thieves? Tax ID theft is an ongoing issue in the U.S. that doesn’t seem to be relenting anytime soon. Every year, millions of Americans become victims of identity theft, costing victims a collective billions per year.

By obtaining an EIN, you immediately get stronger protection from persistent identity thieves. Consultants who choose to operate without an EIN as their tax identifier, will be required to use their SSN and publicize it on required documents so they can get paid by their clients.

Depending on the scope of your business and if you work for one company or many, this could equate to dozens or more entities you are handing your SSN to. Every entity is at risk, but you have no way of knowing who is stringent on cybersecurity and who might be lackadaisical about it.

Any one of these entities can experience a hack or other type of data breach, putting you at risk. Essentially, for every client who pays you, you will need to entrust them with your SSN.

2. Establishes Level of Professionalism/Generate More Work

Using an SSN tends to give off an amateurish view, since using it as a tax identifier makes it look like the professional is doing work as a hobby or, at minimum, not taking their business as seriously. It demonstrates to clients they haven’t taken the steps to formally get a business tax ID.

Obtaining an EIN for professional consultants can elevate your professional reputation. Others who you work for or with, will likely view your business as more credible once you supply your EIN so you get paid and receive your 1099-NEC each tax year.

In the long run, establishing yourself as an expert in your field with a credible business, is likely to lead to you generating more work, thus earning more revenue for your business. Clients may be more inclined to hire you, especially larger organizations that need an expert to fill a gap or niche they don’t have the internal staff to fill.

3. Strengthen Your Company’s Financial Standing

As a consultant, you may rent office space, use a home office, work in the field, or meet with clients virtually. Whatever business model you use, chances are you will need funding at some point, whether it is to buy office supplies, business equipment, lease a company vehicle, or pay for travel costs. Additionally, for many good reasons, you want to set a clear line between your personal and your business financial transactions.

It’s also worth noting that most businesses will be legally required to obtain an EIN, but consultants who operate as a sole proprietor probably will not need one. Exceptions where an EIN is required include:

• Registering a business as a partnership
• Registering a business as a corporation
• Registering a business as an LLC
• Hiring employees (even just one person)
• Opening a Keogh plan for retirement

Get a Business Bank Account

If you are already in possession of an EIN, it will be a lot easier to get a business bank account so you can deposit payments and pay bills. This also helps you establish a clear separation of your personal and business financial transactions.

If you register your consulting business as a single-member LLC, you will need this separation, or else you risk losing the financial and legal protections being an LLC offers or possibly face a costly and time-consuming audit. Being a single-member LLC is a scenario where you definitely want to avoid blurring the line between your personal and business bank accounts and transactions.

Open a Business Credit Card

If you need a business credit card, you will most likely have to supply the lender with an EIN (not always but the majority of the time a bank will require one). This will also help you establish business credit, separating it from your personal credit score.

Better Access to Favorable Business Loans

In the event you want to expand by adding one or more employees or getting bigger office space, you will likely need access to cash. Your EIN and credit standing will help you gain better access to favorable loan terms. While a bank may or may not require an EIN, the process is much quicker with one. Plus, if your business has its own established credit, you are more likely to be approved.

4. Access to More Retirement Options

If your own consulting business is your full-time occupation, and you are your own boss, you will not have access to an employer-sponsored retirement plan. This means taking the steps to establish your own retirement savings so you can live comfortably later in life.

If you have an EIN for professional consultants, you have more options for ways to save for retirement. The EIN gives you the ability to set up an individual 401(k) since the business tax identifier is a requirement for this type of account. You can also open a SEP-IRA to help bolster your retirement savings. Technically, you do not need an EIN for a SEP-IRA, but some financial institutions will require you to have it. Best to be prepared.

Self-employed contractors come in all different sizes and span across all industries. They may be doctors, dentists, lawyers, general contractors, and various types of consultants, to name a few types of self-employed contractors. Statistics suggest roughly 16.5 million people are self-employed, making up approximately 10% of the total working population.

As is required of all businesses, regardless of size, taxes must be paid. Large companies must obtain a contractor EIN or employer identification number. One-man operations can use their Social Security number when filing their tax returns.

1. A Contractor EIN Provides Stronger Protection from Identity Theft

Contractors operating without an EIN will have to give their Social Security number (SSN) to essentially every customer who pays them, along with vendors, suppliers, and several other entities. Considering every year millions of people fall victim to identity theft, routinely giving out their SSN puts the independent contractor at high risk.

In this respect, an EIN can serve to be a useful tool to help protect yourself against identity theft and tax identity theft. Instead of supplying your SSN on every document requiring a tax ID, simply put down the EIN instead. While a breach of an EIN would be bad, it is far better than having your SSN exposed and exploited.

2. Makes it Very Easy to Open a Business Bank Account

Most financial institutions require business owners to have an EIN before they will permit a business bank account to be opened. While independent contractors can theoretically use their SSNs to open a business bank account or use their personal bank account for business transactions, this is not the best course of action.

Separation of bank accounts also helps safeguard the commingling of funds and risks of triggering an IRS audit. In almost all cases, it is best to separate individual and company accounts. This is especially true for LLCs that risk losing the legal and financial protections this business structure provides if there is no financial separation of accounts.

3. Elevate Your Brand Reputation

As an independent consultant, it is difficult to manage all aspects of your business yourself. Chances are you will need suppliers, vendors, partners, or other business entities that you might need to rely upon their expertise to help you operate or complete a job. This means you will need to share your tax ID with many of them.

If you already have a contractor EIN issued to you, this elevates your brand’s reputation because it makes it look professional. As a result, third parties will be more likely to work with you due to the credibility the EIN lends to self-employed business owners.

Many contractors can legally function without applying for an EIN, but there are specific conditions that would necessitate getting an EIN. If the following applies, your business will need an EIN.

• Employees are working for your company
• Your company operates as a corporation
• Your company is registered as a partnership
• You opened a Keogh plan for retirement
• Taxes are withheld for employees who are non-resident aliens

4. Can Help Generate More Work

This somewhat goes hand-in-hand with elevating your brand reputation, but having an EIN can also increase your potential to earn more revenue. Clients may be more apt to hire you, especially larger businesses if you can easily demonstrate you operate as an independent business. Supplying clients with an EIN is an easy way to prove this standard to them.

5. Establish Business Credit

To establish business credit, you should have an EIN before you apply. Business credit card issuers typically require one, although not always. However, shopping around and applying for cards can get time-consuming. Why not simply go for the sure thing and have an EIN ready to include on the application?

Doing so will significantly speed things up and give you an opportunity to separate your personal credit from your business credit. This increases the probability that you can have better access to favorable loan terms and/or not affect your personal credit score if your business runs into financial trouble at any given time.

6. Obtain Easier Access to Business Loans

Many self-employed contractors might use their SSNs to conduct business because they don’t realize the value of a contractor EIN and the many advantages having this type of tax ID affords them. While obtaining an EIN might seem like an additional burden, the good news is that the process is pretty straightforward.

Chances are at some point you will need to raise more money for your contracting business. Whether it’s supplies, equipment, money to expand, or other reasons, you may need to apply for a business loan. While technically, a bank may not require you to have one, the application process is much quicker if you have an EIN in place, since you can easily prove your connection to being a business.

7. Ability to Open Certain Types of Retirement Accounts

As a self-employed contractor, you do not have an employer-sponsored retirement plan, so you will have to rely upon yourself to establish the funds you will need later in life. If you want to set up an individual 401(k), you’ll need an EIN. If you want to establish a SEP-IRA you do not technically need an EIN, but some financial institutions will require one.

8. You Can Hire Employees Any Time You Need

Any business that wants to hire employees must have an EIN. There is no legal way around this. Even if you work solo, there may come a time when you need to hire temporary, seasonal, or year-round part-time or full-time employees.

Once you have your EIN, you can hire workers as you need them without delay. This could prove especially useful if you land a big contract, unexpectedly fall behind on work and need extra hands on board, or need to hire employees to handle certain aspects of your business (e.g. answering phones or doing your books).

The bottom line is that obtaining an EIN is really worth the effort. Once you obtain your new tax ID, you can enjoy the above advantages. You also position your business to be more competitive, able to hire employees, and be ready for expansion, or any other unexpected changes that come your way.

The home health care business is an industry where business owners can simultaneously make a difference while earning a living. To care for others can offer feelings of personal fulfillment, offering either medical or non-medical home healthcare. Either route plays an essential role in helping people with disabilities, age-related conditions, or recovering from illness, injury, or surgery.

Building a home health care business from the ground up involves a lot of planning and hard work. You need to obtain pertinent licenses, market your business to attract clients and handle administrative details such as tax planning.

All businesses are required to pay tax using a unique tax identifier, most of which will use an employer identification number (EIN). While not all home health care companies will need one, there is a high probability you might.

In this article, we will define an EIN and who needs one, and lay out the benefits of an EIN for home health care businesses, even for those companies that are not obligated to use one in their tax reporting.

What is an EIN?

An EIN is a 9-digit unique tax identifier assigned to a business. This tax ID can be likened to a Social Security number (SSN). Much like an individual would use their SSN to file taxes or to submit their W-4s to their employer’s payroll department, a business would use their EIN instead. While an individual can obtain an EIN, the number is actually designated for the business to use. The EIN helps the IRS easily identify companies for tax reporting intentions.

Will I Need an EIN if I’m Self-Employed in Home Health Care?

Self-employed individuals may or may not need to obtain an EIN before they can legally operate. An owner who runs a home health care business and is the only employee working for the business may not need to have one. Generally speaking, you likely do not need an EIN if:

●     You are the only employee

●     Your business is registered as a sole proprietorship

●     You do not have a Keogh plan or solo 401(k) savings plan for retirement

●     You do not withhold taxes on income, other than wages, paid to a non-resident alien

Even if the IRS does not require you to obtain an EIN, it would be advantageous for you to get one. Either way, it is a good idea to review with a professional tax expert or an attorney to determine whether you need an EIN. Your professional can also assist with details, such as necessary licenses and/or certifications you might need, liability insurance, HIPAA compliance, and other important requirements.

Without further delay, let’s take a look at these five benefits for self-employed home health care businesses to obtain an EIN.

1. Puts a Barrier Between You and Identity Thieves

Our society today has to deal with the very real likelihood that it’s not “if” data exposure occurs, but when. Identity theft costs Americans a whopping $43 billion in 2023. Using an EIN can help prevent your SSN from being stolen.

Many victims of ID theft are associated with healthcare. Identity thieves are highly focused on stealing sensitive data from the healthcare industry, including information about patients, workers, and employers.

Medical and non-medical health care providers will need to provide their tax ID on several documents, which means if they do not have an EIN, they’ll need to use their SSN. A tax identifier is required on but is not limited to billing documents, insurance documents, and other types of public-facing documents, along with certain types of financial transactions.

As a small business, you might not have stringent cybersecurity mechanisms. Alternatively, those you provide your tax ID to may also not have a strong security posture to protect the data they collect, manage, and store.

Bottom line: every time you give out your SSN as a tax ID, you increase the risk your SSN will be breached, stolen, and exploited. While an EIN breach is bad, it’s not nearly as damaging as having your SSN exposed.

2. Offers Financial Separation of Your Personal and Business Transactions

Using an EIN instead of an SSN provides a clear distinction between your personal and business financial transactions. With an EIN, you will have an easier time opening a business bank account, so you do not need to commingle your funds, causing tax issues and creating potential risks of being audited by the IRS.

Another thought to consider is whether you registered your home health care business as a sole proprietorship or a single-member LLC. If you choose the latter, you will be required to separate your personal and professional transactions. By not taking those steps, you risk losing the legal and financial protections an LLC structure offers you.

3. Helps You Grow a Solid Business Credit Standing

Individuals typically work hard to establish a good credit rating and credit score. Did you know businesses are also rated on their credit? When you have an EIN, you can open a business credit card so you can increase your company’s credit standing.

Once you get your company’s credit established, you can apply for business loans or other lines of credit to help you run your home health care business. Additionally, much like individual credit standing, a good business credit standing will usually equate to having access to more favorable credit terms when you need to borrow money.

Keep in mind that it’s not uncommon for home health care companies to experience fluctuating levels of cash flows due to market demands (which may or may not be consistent), along with delays in being reimbursed by insurance companies or waiting on client payments. Having good credit enables you to have access to cash when you need it.

4. Establish the Credibility of Your Home Health Care Business

It can be highly challenging for new home health care businesses to get new clients because they are unknown entities and have not yet established a reputation. Not having an EIN can work to your disadvantage and put a barrier in the way of building trust with the public.

By blending your personal and business identifications without the distinct separation an EIN provides, people are likely to think you do not commit to taking your business seriously. Small business owners should not underestimate the professional appearance an EIN will provide. In a field such as healthcare, you do not want to look amateurish because it has the potential to hurt your business in the long run.

5. Position Your Home Health Care Business for Continuity and Growth

When you consider all of the above benefits, it’s clear to see how an EIN can both protect you and increase the value of your business. Taking all of the above into consideration, here is a list of the ways an EIN helps you position your home health care business for future growth or to keep your business afloat.

●     Can hire employees if you cannot handle all of your clients yourself or need other roles filled, such as receptionist, medical coding and billing specialist, or driver, to name a few *

●     Empowers you to have faster and better access to favorable loan terms if you need to quickly expand office space or hire more employees

●     Make major purchases (e.g., if you need one or more new company vehicles)

●     Have access to business credit to buy essentials such as scheduling software, electronic health record system, telehealth software (if applicable), and the necessary hardware to support them

Like any industry, you have to be prepared to handle the ebbs and flows that come with market demand. If your business experiences an uptick, you will need to be prepared to handle volume lest you risk harming your brand reputation. On the other hand, if the market has a downturn and you aren’t bringing money in, you can get access to funds to hold you over until things pick up again.

*Note: You legally cannot hire employees without an EIN – this is important because if you need immediate help in running your company, you won’t be able to – best to have the EIN already in place.

How to Get an EIN

To obtain an EIN, you’ll need to provide specific details to the IRS. Be sure to fill out all sections accurately, and don’t leave any blanks.

●     Legal name of your company

●     DBA designation, if used

●     Address

●     Phone number

●     Registered business structure (e.g., LLC)

●     Name of the individual responsible for the company (you)

●     Your SSN or ITIN

●     Date you began providing home health care services

●     Reason why you want an EIN

After you complete your application to the IRS and proofread it, it’s ready to submit.

Conclusion

Home health care, much like other occupations in the healthcare industry are in high demand. Between the years 2023 – 2033, the U.S. Bureau of Labor Statistics projects customized home health care services to increase by a significant 21%. This is much faster than other types of occupations.

Launching and growing a home health care business to help others in their time of need can be very rewarding. Ensuring you have the correct licenses and certifications your state requires, along with getting an EIN to better track your company’s financial transactions and taxes, will help set you on the road to success.

An estate is a legal entity formed at the time of an individual’s (“decedent’s”) death and consists of all assets. Essentially, an estate equates to an individual’s net worth, which is distributed upon a person’s death. This includes, but is not limited to: personal property, real estate, motor vehicles, boats, cash, and other items of value owned by the decedent.

Estate planning is assembling all of your assets, outlining your wishes, specifying your directives, naming your heirs, and pulling it all together into a comprehensive plan. Every adult should plan to do some level of estate planning. Not creating a plan leaves children and/or other beneficiaries facing many problems after a death, including legal hurdles, stress, extra costs, and other complications while simultaneously dealing with their grief.

In this article, we’ll discuss what components you should consider and the necessary steps to take. We’ll also explain how to obtain an employer identification number (EIN) for your estate, so its financial affairs can more easily be put in order.

1. Make a List of Documents You Need to Assemble

To start, make a list of all the important documents you will need to assemble. This list of documents typically includes wills, trusts, insurance policies, power of attorneys (POW), healthcare directives, guardianships, and other components. Once complete, your estate plan clearly outlines how you want your estate handled in the event of your death or incapacitation.

2. Create an Inventory of Assets

It’s common for people to believe only the wealthy need to do estate planning, but this is a fallacy. While a wealthy person’s estate planning might be more complex due to having numerous assets and holdings, almost everyone owns at least some belongings or valuable items they want to leave behind for their loved ones.

Create an inventory of your assets, including any tangible and intangible assets. When planning your estate, think about everything you own, such as homes, land, and other real estate holdings, ownership in a business, cars, boats, motorcycles, cash, bank accounts, retirement accounts, investments, jewelry, coin or stamp collections, art, clothing, and other assets.

It may sound strange, but you also need to list liabilities and debts in your asset inventory. This is because any money you owe will need to be repaid by your estate at some point, even after your death. Identifying debts and liabilities helps make things easier for your estate’s executor or administrator. This way, they can speed up the process and quickly settle debts before distributing assets to beneficiaries.

3. Plan for Familial Needs

After identifying items in your asset inventory, you’ll want to think about how to protect them so you can establish a plan to take care of your family after you’re no longer here to do so. To make a plan for familial needs, plan to:

• Create a will
• Establish trusts (be sure to learn about irrevocable, revocable, and all the other different types of trusts)
• Buy a life insurance policy with sufficient funds
• Parents should designate chosen guardians (and a backup guardian) for their minor children to ensure they are raised by someone they trust and who will follow their parenting preferences
• Make arrangements for any adult special needs children or other relatives being cared for

You also might want to consider consulting with a professional financial planner or attorney to help you establish a plan for your family plan. This way, you ensure you don’t miss any important details, making sure your family is well cared for after you’re gone.

4. Establish Power of Attorney Documents

In the event of your incapacitation, you’ll want a trusted person to make decisions on your behalf. There are many ways to establish power of attorneys (POW), but the two primary ones people elect to create are a medical power of attorney and a financial power of attorney.

Medical Power of Attorney

All individuals, regardless of age, should plan to outline their medical directives/wishes. No one likes to think about it, but it’s important to prepare for the possibility of incapacitation from an unexpected injury or illness. A medical power of attorney will ensure the person you choose can make healthcare decisions in accordance with your wishes. This person will follow any healthcare directives you establish (this is often referred to as a “living will”.)

Financial Power of Attorney

In the event you’re unable, you’ll want someone you trust to handle your money-related decisions and/or actions when you are unable. This includes making financial decisions, conducting money transactions, and/or managing property, to name a few examples of responsibility.

A medical power of attorney and a financial power of attorney can be one person or two separate individuals.

5. Double-Check Your Beneficiaries

Once all of your estate planning documents are in place, take time to carefully review your beneficiaries to ensure you didn’t inadvertently overlook anyone in your will or trusts.

• Ensure your heirs’ names are properly spelled
• Clearly outline which assets will go to which beneficiary
• Ideally, be very specific, so there is no confusion or conflict when your assets are being distributed.

In addition to your estate plan, you should re-check the individuals you have listed as beneficiaries on your bank accounts, insurance policies, retirement accounts, and any other relevant accounts. You also want to select contingent beneficiaries to inherit specific assets in the event your primary beneficiaries predecease you, and you did not have the chance to update.

Finally, be sure all beneficiary sections are filled in, leaving no spaces left blank in your account paperwork or online profile. If your beneficiaries are not selected, the state will most likely be the entity to choose them during probate. This decision may not be in alignment with your preferences, so be sure you select them yourself.

6. Routinely Review Estate Plans

Remember, life circumstances often change. You might get married, go through a divorce, remarry, or have more children. Take the time to make certain the people you want to take care of after you’re gone, are the ones actually listed in your documents and on your accounts.

When beneficiaries are left out , this can lead to bad feelings and conflict. For instance, if you had a first marriage, but later divorced and neglected to remove your ex-spouse when you remarried someone else, your first spouse would be the beneficiary and your new spouse would not receive any assets or insurance policy money. This is likely not what your wishes would be, so be sure to review everything periodically.

Additionally, as other major life events happen, such as having more children, adopting children, losing a loved one, getting a new job, losing a job, or other significant changes, you should review your estate plan.

While you don’t need to check your estate plan monthly, plan to reassess your plans when life changes or at least every 3-5 years. If necessary, revise your plan to accommodate your current situation and ensure everything is up-to-date. Keep in mind, even if your life circumstances do not change, state laws might be added or altered, which might affect your legacy wishes.

7. Obtain an EIN for Your Estate

No one wants to think or discuss their mortality, but it’s best to be proactive to preserve your legacy. Upon your death, your estate will become a legal entity, which means it’ll owe taxes and have other obligations. Your Executor, Administrator or Personal Representative will need to obtain an EIN.

An EIN empowers the estate’s representative to open a separate bank account for your estate so they can assemble assets and pay off any debts or expenses when settling the estate. The tax ID is also required to file a tax return for the estate.

How to Obtain an Estate EIN

To obtain an EIN for an estate, you must file SS-4 “Application for Employer Identification Number” online, by fax, via USPS, or by having the assistance of a professional. Information to include is as follows:

• Decedent’s first, middle (optional), and last name
  • Note: Be sure the decedent’s name is an exact match to the IRS and Social Security Administration’s files
• Name of executor/administrator (or personal representative)
  • First, middle (optional), and last name
  • Full address (no PO boxes permitted)
  • Social Security number
• The date the estate was established and funded
• Address of the estate
  • Note: if the address changes, submit Form 8822 to update

Estate Planning is an Important Task

Mortality and incapacitation are two difficult topics to think about, but doing so is necessary. Due to this, many people find estate planning to be stressful, complex, and/or an overwhelming set of tasks. As a result, it is common for individuals to procrastinate or inadvertently miss important steps.

Generally speaking, by age 30, you should at least have a basic plan. However, you can start as soon as you turn 18 to, at a minimum, stipulate your healthcare directives. You definitely want to have your estate plan in place as you approach your 50s.

Starting early helps to ensure important details aren’t overlooked. For instance, having a will, trusts, and insurance in place will help ensure your final wishes are properly carried out.

Estate planning involves many components and, for many Americans, taking care of this important task is often put to the wayside.

However, it’s worthwhile to give estate planning serious consideration before it’s too late. Planning isn’t just for the wealthy. Every adult should have a basic estate plan in place which includes a will, trusts, power of attorney, healthcare directives, and beneficiary designations.

Even if you are young and/or don’t have many assets, you’ll want to at least create healthcare directives and power of attorney documents. Many people don’t even do the minimum for a variety of reasons, such as procrastination or thinking they don’t own enough assets, or that they have plenty of time.

Estate planning is overwhelming. Depending upon an individual’s circumstances, it also might be complex. Understanding the steps involved is helpful to demystify the process so that costly mistakes can be avoided. Unfortunately, the unexpected can happen at any given time. You want to be ready.

When assembling your plans, be sure to avoid the following five estate planning mistakes.

1. Procrastination

Not doing any estate planning is costly, yet many people put off this important task. Procrastination is probably the number one mistake in estate planning people tend to make.

According to a Caring.com survey, only 32% of Americans had an estate plan in 2024, a 6% decline from 2023. Furthermore, 40% of U.S. adults do not think they own enough assets to create a will.

The consequences of procrastinating on this essential task are many.   

●     Putting your estate at risk if an unexpected accident or death occurs

●     Losing out on compound interest if accounts aren’t established

●     Leaving your family vulnerable to creditors and predators

Procrastinating estate planning can also leave your family in chaos, having to deal with the legal fallout, arguments over assets, and the costs associated with settling your estate.

2. Forgetting to Designate Power of Attorney

Power of attorney documents (POAs) are vital documents for adults 18 and older to ensure that in the event of incapacitation, a person’s wishes are carried out to their preferences. How it works is that the individual designates one or more people to make their decisions for them in the event they cannot.

Two primary types of POAs are medical power of attorney and financial power of attorney:

●     A medical POA names the person you want to serve as your healthcare proxy to make your decisions, along with outlining any advanced directives you have for medical care, long-term care, or end-of-life decisions.

●     A financial POA designates who you want to carry out any financial affairs decision-making in the event you cannot do so yourself.

POAs can be intricate, depending on your individual circumstances, and it’s important to learn the difference between durable and non-durable POAs.

3. Missing Key Documents

●     Last will and testament: A legal document outlining how you want to distribute your assets and any other provisions (e.g. who will care for your minor children or special needs adult child).

●     Trust documents: These are legal documents that allow you to transfer your documents to an account, either before or after your death, depending upon your preferences.

●     Beneficiary designations: The individuals who will receive your assets upon your death.●     Powers of attorney(s): Legal documents outlining who will take charge of your medical and financial decisions in the event you are unable.

Other key documents you want to include in your estate planning are life insurance policies, instructions for your funeral and burial, copies of your proof of identity documents, and the paperwork for any large assets you own, such as homes, boats, or bank accounts, to name a few.

You should also plan to include any other documents tailored to your specific situation (e.g. if you own rare artwork, valuable jewelry, or own a business). This way, you ensure your last wishes are properly carried out in the event of your death or decisions you want made in the event of your incapacitation are made in alignment with your wishes.

4. Not Sharing Details With Children or Other Beneficiaries

You’ve established and completed your estate planning. That’s great news! Finishing this task lifts a great weight off your mind. After the task is done, a big mistake people often make is to forget to share their estate planning details with their children or other beneficiaries.

This is an error you want to avoid making because many problems can emerge. You don’t want to leave your children and/or other beneficiaries guessing or having to deal with unnecessary stress about what to do during their time of grief. If you have instructions ready for them, this makes things easier for them.

Talking about mortality isn’t easy. No one wants to discuss the death of themselves or loved ones, but it’s a necessary conversation to have before it’s too late. Informing your beneficiaries of your plans and letting them know where to find a copy of your estate plan makes things much easier for them and avoids potential conflicts.

5. Not Updating Information

Estate planning documents aren’t a “set it and forget it” type of task. Your plans are essentially living documents that should be revisited from time to time. You don’t even have to do this every year, but you should do it when major life changes occur so they can be updated or simply be reviewed every so often to make certain something doesn’t need to be adjusted.

Generally speaking, you definitely want to revisit your estate plans in the event of marriage, divorce, birth of a child (or grandchild), adoption of a child (or grandchild), or the acquisition of new assets not outlined in your original plan.

Over time, many changes can occur. For instance, you may add or lose assets, your personal beliefs might evolve, your relationships change, or one or more of your beneficiaries predecease you.

A good rule of thumb to follow is to review your will and other estate planning documents every three to five years at a minimum. Doing so ensures nothing is inadvertently overlooked or forgotten.

6. Neglecting to Obtain an EIN

People often associate having a tax ID/employment identification number (EIN) with filing their federal and state taxes, but did you know an estate needs an EIN? In terms of taxes, an estate is treated much like a business. It separates your final tax return from your estate’s tax return.

Why is an EIN needed?

If an estate generates more than $600 of gross income for the year (e.g. account interest, revenue from rental property, etc.), any tax on revenue incurred will be owed. The individual in charge of handling an estate must file an income tax return for it. To do so, they will need to obtain an EIN.

You can make this task much easier and expedite the estate settlement process by applying for an EIN soon after the death of your loved one.

How to apply for an EIN

To file for an EIN for your estate, you’ll need to submit the SS-4 form called “Application for Employer Identification Number” online, via fax, or by USPS mail. This process can take a few weeks.  You can also seek out the assistance of a professional on-line service and obtain an EIN the same day.

Information you’ll need includes the decedent’s first and last name that is an exact match in the IRS and Social Security Administration’s records, along with their Social Security number. Other details to include on the application include the first and last name of the estate’s executor (or administration/representative) and their social securitynumber with their full address. Keep in mind this must be a physical address as no PO boxes are permitted.

Once you obtain your EIN, it’ll be much easier for the estate’s executor to carry out their responsibilities for the estate and help to expedite the process.

Estate Planning Can Be Overwhelming

Many people feel the estate planning process is overwhelming and, as a result, tend to put off making any or all arrangements to plan for incapacitation or death. This is especially true when juggling the day-to-day responsibilities of their lives, such as work, driving kids to soccer practice and piano lessons, doing chores around the house, and having to take care of numerous other time-consuming activities.

Not to mention, the creation of and assembling of estate planning documents can be confusing. With so many legal terms to learn and then determining what documents or steps are necessary to make pertinent arrangements.

Thinking about death and incapacitation isn’t an easy thing to do, but it is an essential task to complete. By making sure you’ve avoided the above top mistakes, you help to ensure your last wishes are carried out in alignment with your preferences and that your children and other beneficiaries aren’t left with various legal hurdles and details to take care of, since you’ll have already had everything outlined for them.