7 Benefits for Coffee Shop Owners to Obtain an EIN 

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:

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.

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Written by Maurice Mallory

Gov Easy LLC is an Authorized E-File Provider and helps clients obtain Federal Tax ID Numbers from the IRS. We are a business-to-business (B2B) application assistance and filing service and are not affiliated with the IRS or any other federal or state organizations. We do not provide legal, financial or other professional advice. We are not a law or an accountancy firm nor are we affiliated with either. Users are able to obtain a Tax ID number on their own by working directly with the IRS, but they will not be able to use the streamlined application process or engage with e-mail support.