Small businesses should apply for an employer identification number (EIN) when they start up. It is a nine-digit number that actually takes the place of the social security number of the business owner. It is a unique number that officially identifies the business.
A employer tax identification number can be obtained by applying online or by completing and filing Federal Form SS-4.
In the past, it wasn’t always necessary for a sole proprietorship to obtain an EIN because they reported their business income and expenses on their personal returns. Even now, if a business has no employees and does not maintain a retirement plan, it does not have to have an EIN.
Many banks, however, require an EIN for a business to open a bank account. A business EIN is a good way to build credit for your business that is separate from your personal credit. In today’s age of identity theft, it may be a good idea for a small business to have an EIN even if it is not required.
