No one likes dealing with the IRS, but it’s a necessary part of owning and operating your small business. One of the first things you have to do is obtain a tax ID number to ensure that all of your expenses and profits are handled properly. When it comes to these IDs, you can either stick with your social security number (SSN) or an EIN number. Let’s break down the benefits offered by both and when you should use them.
What is an EIN?
This stands for Employer ID Number, and it’s a tax ID that makes your business separate from yourself. Rather than using your SSN for company expenses and debts, you can get an EIN and keep everything apart from each other.
When Do I Use My SSN?
If you form a sole proprietorship or a partnership, you don’t necessarily have to get an EIN. In this case, you would use your social security number when filing for business licenses and permits. This also means that you are liable for any debts that the company accrues.
When Do I Use an EIN?
In some cases, you may have to get an EIN to operate your business. For example, if you apply for LLC online or form a corporation, you have to obtain an EIN beforehand. At Gov Doc Filing, you can take care of all of these documents in a single location.
Benefits of SSN
Overall, the only reason to use your SSN is to make things easier for you when filing taxes. Because you don’t have to submit two separate returns (one for you, one for the company), you can save a lot of time and energy.
Benefits of EIN
Even if you are forming a sole proprietorship or partnership, it’s usually best to get an EIN anyway. Here are some reasons you may want one:
- Hiring employees
- Setting up a Keogh retirement plan
- Opening a business bank account
- Selling certain restricted items (i.e., tobacco or alcohol)
In the end, either tax ID is sufficient as long as it matches the kind of entity you’re creating. Still, an EIN offers much more flexibility and protection, so it’s worth checking out.