Every business or entity in the US requires a tax ID number (EIN) for smooth business operation or tax purposes. However, the sole proprietorship with no employees does not need an EIN, as they could meet the tax responsibilities with their ITIN or SSN.
EIN (Employer Identification Number) has its benefits and is required in particular situations, so if you own a sole proprietorship, you should apply for the tax ID number from the IRS.
Apply for a Tax ID (EIN) Number for a Sole Proprietorship
The sole proprietorship is the simplest form of business, singly owned by one person. Its liabilities are your own, and you are responsible for all its risks and assets, so generally, you use your Individual Tax Identification number or Social Security Number for taxes.
However, many people prefer to obtain an EIN, though it is not legally required due to its benefits, like it separates your business from your personal tax. So, if you are one of them, you can apply for it through IRS Form SS-4 or online, such as
- Online: IRS accepts EIN applications through various methods, but the fastest is the online tool (EIN Assistant) that lets you get your tax ID number on the day you applied if all the information is valid. You can use EIN assistance in the following steps:
- On the EIN assistant page, click continue application when you have read all the instructions.
- Next, select sole proprietorship as your legal entity and afterwards enter your business details – name, location, and others.
- Enter all your details depending on whether you are a third party or a responsible party.
- Next, review all the details and submit the online application without paying any fee.
- Post: You can mail the completed IRS form SS-4 to EIN Operation, Cincinnati, OH 45999.
- FAX: Send the filled form to 855 641 6935.
Important Note:
- You can apply by phone (267-941-1099), mail, or fax (inside the US: 855 215 1627; outside the US: 304-707-9471) if your primary business is not in the US, because International applicants cannot apply online.
Common mistakes to avoid when applying EIN
If you are applying for the tax ID number (EIN), you should know the following common mistakes to avoid to get it as soon as possible:
- You should have registered your sole proprietorship legally with the state authority where your business is established.
- If you apply for an EIN through the online tool, remember that you should select the right legal entity,
- If you are applying for your client, remember to attach the signed authorization letter from your client to the application, or you will have to submit the other forms.
- You should enter your business structure’s valid details and the responsible party’s details; otherwise, it can cancel your EIN application.
- If you are opting to apply online, you should know you can apply once a day for a tax ID number.
- You should write your business name and address as per the rules, like it can only contain alphabets, numbers from 0 to 9, symbols (& and -), and the address should only contain 35 characters.
How much time will it take for the EIN for the sole proprietorship issuance?
If you applied for the tax ID (EIN) number, your timing of receiving the ID depends on the method of your application, such as:
- Online Application: 24 hours
- Fax: 4 working Days
- Mail: 4 weeks
When do you need the EIN for a Sole Proprietorship?
The sole proprietorship generally wonders when the EIN is necessary for them to comply with all rules. If you are wondering the same as till now, you have filed taxes through your ITIN, you can check the reasons below:
- You have employees or you are planning to hire staff;
- You inherited or purchased the business
- You have to pay the employees’ retirement plan, withhold taxes from wages for payroll taxes, and other taxes.
- You have to pay for excise duty or other taxes, like alcohol, tobacco, or other taxes related to your business.
When will you need a new EIN for a sole proprietorship?
If you already have an EIN for your sole proprietorship, under the following particular conditions, you may have to apply for a new one, as the old one may become invalid:
- You have formed a partnership with a business or individual
- You have declared bankruptcy under Chapter 7 or Chapter 11
- You are formally converting the sole proprietorship to a corporation and setting up a pension, profit-sharing plan, or retirement plan for your stakeholders or employees.
Exclusions:
- You don’t need one if your business name has changed.
- No need for a new one if your business location is changed or you operate multiple businesses.
EIN lets you separate your business, legalize your operations, and help you manage your business smoothly, as it will have its own financial identity that can reduce lots of paperwork, so get your EIN now.
