Can I have a business without a tax ID?

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Depending on the type of company and its planned business actions, a tax ID number (TIN) may not be required.

For example, a tax ID is not mandatory if you are a sole proprietor, or a Limited Liability Company (LLC) without employees. In both cases, the business owner can use his/her Social Security Number (SSN) in lieu of a tax ID, sometimes called an Employer Identification Number (EIN).

Business entities such as corporations, partnerships, trusts, estates, etc., are all required to obtain a tax ID or EIN. This number is assigned by the Internal Revenue Service (IRS), and is used to identify businesses with respect to their unique tax requirements.

Even if you’re not required to obtain a tax ID or EIN, there are some organizational advantages you might want to consider.

An EIN is a nine-digit number that functions like a Social Security Number for tax-paying individuals. This number is what identifies your business within the IRS, and is also used to create a credit file with banks and other credit agencies.

An EIN is obligatory if you wish to open a bank account in the name of the business, such as a tax ID for LLC,  or if you wish to seek credit on behalf of your company.

Why Do I Need a Tax ID?

To clarify, the difference between EIN and TIN is simple: an Employer Identification Number (EIN) is a type of tax ID (Tax Identification Number or TIN), and will suffice in most cases if and when a tax ID is required.

If you plan on starting a business, there are only a few cases in which you will not be required to obtain a tax ID, but there are still advantages to having one, even if it’s not mandatory. 

Do I need a tax ID for a company?

Definitely If:

  • As the sole proprietor of a business, you are subject to a bankruptcy proceeding, you take in partners and run the business like a partnership, you purchase or inherit an existing business, or you incorporate.
  • As a corporation, you receive a new charter from the secretary of state, you change to a sole proprietorship or a partnership, you become a subsidiary of another corporation, or you are part of a new corporation formed by a merger.
  • As a member of a partnership, you incorporate, you dissolve the partnership and enter into a new one, or one of the partners takes sole ownership of the company.
  • As a new LLC, a single owner who chooses to be taxed as a corporation or an S- corporation, a single owner who has an excise tax or employment tax filing requirement, or one with multiple owners (multi-member LLC with EIN).
  • As a trust, one person is the grantor of multiple trusts, the trust changes to an estate, a living trust changes to a testamentary trust, or the trust is terminated and its property distributed to a residual trust.

Should I get an EIN number now?

Yes, as soon as possible because getting an EIN is the first step to making your business legal and official, and it is mandatory for the steps that follow, mainly filing your taxes.

You can obtain a new EIN by submitting an SS4 form by fax, which takes about 4 business days, or by snail mail, which takes longer than a week. But the fastest way to get your EIN is by applying online, where you get:

  • Fast, accurate and easy online processing
  • Smart forms which reduce common mistakes
  • Secure storage for your EIN number and SS4 form
  • 24/7 personalized customer support
  • Your new EIN within hours with same-day service

In the case of single-member limited liability companies (LLCs) and sole proprietors, these small business entities are considered to be not separate from their owner.

So how do you know if registering your business as a sole proprietor or limited liability company (LLC) is the right move for you? Read on to find out.

Sole Proprietorship

This business classification is perfect for an individual who owns and operates his or her business completely alone. This owner has no employees, is responsible for all payments, expenditures and debts and is the sole recipient of all profits. In this case, legally, there is no difference between the business and owner, who owns literally every part of the business.

This does not mean, however, that that owner has to use his or her name to do business. On the contrary, many owners choose a distinct business name to represent their company, which they typically have to trademark.

Limited Liability Company

An LLC is the right move for you if you are a single owner who likes the advantages of a sole proprietorship, or a small number of individuals who like your partnership status but want some basic protections of a larger company. It is technically a business, though it is considered an unincorporated association rather than a formal corporation and thus has more flexibility.

Basically, this is a good match for an individual, or small partnership team, who appreciates some basic protections afforded corporations, such as limited liability, and the benefits of sole proprietorship, such as pass-through income taxation. This benefit allows income from the business to “pass through” to its owner or owners, as well as avoid double taxation and paying dividend taxes.

Ultimately, it is worth your time and effort to carefully consider how to register your business before doing so. So make sure to discuss all of these possibilities and eventualities with your accountant.

Select Your Entity Type to Apply for a Federal Tax ID Today