Almost all businesses need an employer identification number (EIN). This is a nine-digit number that identifies your business to banks and on government forms. However, the EIN application process varies depending on the structure of your business. To help you out, this guide explains how to obtain an EIN for a sole proprietorship.
Frequently Asked Questions
New business owners have all kinds of questions. They have to deal with countless challenges when they open their businesses. Luckily, obtaining an EIN is relatively simple. To show you how easy the process is, we put together answers to some of the most frequently asked questions about this topic.
What Is A Sole Proprietor?
A sole proprietor owns their own business. They don’t have partners or shareholders.
When they file their tax return, they generally report the profits and losses on a Schedule C that they include with their personal tax return. Business entities that fall into this category include unincorporated small businesses and freelancers.
When Does a Sole Proprietor Need An EIN?
A sole proprietor needs an EIN so that they can hire employees. They also need one if they’re going to collect excise taxes. In most cases, sole proprietorships also need an EIN for banking purposes, including opening a business banking account or applying for loans in the business’s name.
Why Apply For An EIN If It Isn’t Required?
Even if you don’t need an EIN right away, your business will need one in the future. By applying for an EIN when you open your business, you ensure you have it when you need it. Then, you don’t have to deal with a delay when you want to hire an employee, apply for a loan, or do other tasks that require an EIN.
How Many EINs Can a Sole Proprietor Have?
A sole proprietorship (the business) only needs one EIN. But a sole proprietor (the owner) can have multiple EINs. They can have an EIN for every business they own. However, you can only apply for one EIN per day. If you need multiple EINs, you will need to apply on several different days.
How Long Does It Take To Get An EIN For A Sole Proprietorship?
Processing time for EIN applications varies based on how you apply. If you apply for this taxpayer identification number through the mail, it can take four to six weeks. It may take longer if the Internal Revenue Service is backlogged. If you apply using fax, the IRS will mail you a number in a couple of weeks.
The fastest option is EIN applications online. If you apply online, you should get the number that day or the next business day.
Apply For A Sole Proprietor Tax ID (EIN) Number Online
The online application is the fastest way to get an EIN for a sole proprietorship. Here is an overview of the steps you need to follow to get this number.
1. Provide the legal and DBA names of your sole proprietorship.
The legal name of many sole proprietorships is the name of the owner. Then, you may also have a doing-business-as name that you use on your signage and marketing materials. Make sure you understand what your legal name is before you start the application.
2. List yourself as the responsible party.
You must list a responsible party and their Social Security number. Even if you want an accountant to file the EIN application form for you, you will still be listed as the responsible party.
3. State why you want the EIN.
You need to explain why you want an EIN. For instance, if you need the number to open a business banking account, you will note that as your reason. Similarly, if you’re hiring a new employee, you will list that as your return.
4. Specify your type of business entity.
The application lists a variety of business entities. You should choose sole proprietorship when you fill out the online application. If you have registered your business as an LLC, you are still a sole prop for tax purposes. As a result, you should mark sole prop as your business entity. Then, you should note that you’re an LLC and the date you registered the LLC.
5. Share your principal line of business.
You will also need to note your industry and describe your main products or services. You don’t have to be overly detailed in this section. You just need to note the basics. For example, you might note hospitality if you own a hotel.
6. Note your number of employees.
Even if you don’t have any employees now, you need to estimate how many you’re going to hire over the next year. You should note the number of general, household, and agricultural employees on your form.
7. Declare if you want to file payroll tax returns annually.
In most cases, you will file your payroll returns quarterly, but if you think that you will pay less than $1,000 in payroll tax over the next year, you can use your EIN application to note that you want to file payroll returns annually.
Once you put in all the required details, you’re ready to submit the application. Then, you should receive your EIN very quickly. It will be auto-generated on your screen, and you don’t have to wait for the mail to come to receive your EIN number.