Businesses that have a tax ID number enjoy many benefits that are not available to those without one. As you grow your small business, every process you can streamline and penny you can save increase your chances of success. In fact, in some states, a tax ID number, also known as an employer identification number, is required for businesses to operate. Here are some other benefits you gain with a tax ID number.
Once you decide to hire employees for your business, you must have a tax ID number to report documents and taxes to the IRS. When you report information about your workers to the state, they will also ask about your EIN. Even if you plan to be the only worker for your company for a while, the second you hire an employee you’ll need to fill out a tax ID number application.
Without a tax ID number, you are limited in how you can structure your business. Partnerships and corporations require tax ID numbers to operate. The number can also protect the owner and their assets from liability and business debt if your business is a corporation.
As your business grows, you’ll want to separate your personal accounts from your business transactions as much as possible. With a federal tax ID number, you can get a business credit card or checking account to handle the day to day operations of your business. This also builds the creditworthiness of your business.
If you hire a person that is not a US national or citizen, you may need to withhold taxes on non-wage income. While this person can work for you, you must have an EIN to employ them and pay the appropriate taxes.
Self-employed individuals may want to set up a retirement plan, and this requires an EIN. These retirement plans are known as Keogh plans and are available to unincorporated businesses and the self-employed