Why Does A Sole Proprietor Need To Get An EIN?

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In most cases, a sole proprietor does not need to get an EIN. Usually, it is totally acceptable for a sole proprietor to use his or her social security number in the place of any other tax identification number.

However, there are some times when a separate number is necessary. In fact, in some instances, having a separate EIN for one’s business may even be preferable. Read on to get a rundown of when having a separate EIN is required and makes sense for your sole proprietorship.

When It Is Required

A sole proprietor must get a separate EIN for a business if any one of these things are true:

  • That individual wants to hire employees, wants to open a Keogh or solo 401(k), or chooses to file for bankruptcy protection.
  • When that individual plans to purchase an existing business and operate it as a sole proprietorship
  • When a partnership or limited liability corporation (LLC) is formed, or incorporated.

Finally, while not required by the federal government, some banks will not allow you to open a bank account in your business’ name if you do not have a separate EIN.

When It May Be Preferable

Some sole proprietors, though, believe having a separate tax identification number is a better option for a couple reasons. First, it is safer, as it is a way to shield your personal social security number from potential identity theft. Second, it can improve the perception people have of your business, as it establishes you clearly as an independent owner and contractor rather than an employee.

No matter where your sole proprietorship falls on this scale, you can find everything you need to get your status set at www.irs-ein-tax-id.com.

 

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