The simplest and most common business structure, a sole proprietorship refers to an unincorporated business run by a single individual. When you run a sole proprietorship, you report your business income as personal income and you get taxed accordingly. In contrast, with a corporation, the business pays you salary or dividends which you report as your personal income, and the business reports its own profits on a corporate income tax return.
Sole proprietorships need a special tax ID called an Employer Identification Number (EIN) for a number of different purposes. So that you’re prepared, here’s what you need to know about how to get an EIN for a sole proprietorship.
Ready to apply for your EIN? Start your Employer ID Number Application
Steps to Getting a Tax ID (EIN) Number for a Sole Proprietorship
- Prepare Mandatory Business Information
- Apply for a Sole Proprietorship Tax ID (EIN) Number Online
- Apply for a Sole Proprietorship Tax ID (EIN) Number via Mail or Fax
- How Do I Obtain a Tax ID (EIN) Number for my Sole Proprietorship?
- How Long Does it Take to Obtain a Tax ID (EIN) Number for my Sole Proprietorship?
- Why Do I Need a Tax ID (EIN) Number for my Sole Proprietorship?
If you need an EIN for your sole proprietorship, you need to provide the government with several details about your business. Ideally, you should gather the mandatory information before you start applying. That helps to eliminate hurdles along the way. You need the following pieces of information:
- Name of your sole proprietorship
- Doing business as (DBA) name of your business if applicable
- Contact info for your business
- Your name and Social Security Number (SSN) or Individual Tax Identification Number (ITIN)
- The EIN of your sole proprietorship if you have acquired an LLC are are obtaining another EIN
- Type of business
- Principal business activity
- Reason you’re applying for an EIN, potential reasons are detailed below
- Number and type of employees
- Whether or not you plan to pay more than $1,000 in employment tax for the year
- Ending date of your sole proprietorship’s tax year
You can apply for a sole proprietorship EIN online, and if you want to receive your number as quickly as possible, this is typically the best option. With an online application, you need to share the details mentioned above. You also need to provide an electronic signature for yourself. You can also designate another party to complete the application on your behalf.
Once you have all the required details, you can complete an online application from the comfort of your business, home, or any other location where you have access to the internet. Try to give yourself at least a half an hour to ensure that you have ample time to answer all the questions.
Alternatively, your sole proprietorship can also apply for an EIN through the mail or over fax. In this situation, you should print out a paper application. The details you provide about your company are the same as what you use for the online application.
After you fill out the application, you can fax it to the number or mail it to the address on the form. As applicable, make sure to include your fax number or return address. Without that information, the government can’t fax or mail you the number.
Note that you can also apply over the phone, but this option is only available to sole proprietorships based in foreign countries. You must make the call during regular business hours during weekdays.
To obtain a tax ID (EIN) number for your sole proprietorship, you simply need to follow these steps:
- Gather information about your sole proprietorship as explained above.
- Decide if you want to apply online, over fax, or through the mail.
- Note that if your business is based in a foreign country, your only option may be to apply over the phone.
- Fill out the application form.
- Submit the form online or fax/mail in paper forms.
- Wait for the government to send you a sole proprietorship EIN.
- Start using your EIN on tax documents and banking forms for your sole proprietorship.
The process to obtain a tax ID (EIN) number for a sole proprietorship takes varying amounts of time depending on how you submit the application. With an online application, you can recieve your number within moments after you apply or at least on the same day in most cases. In contrast, if you fax in an application, you should expect to wait four days for the tax ID number to be faxed to you, and if you mail in your application, the process can take four to six weeks.
Note that if you don’t provide the requested information about your sole proprietorship or if you make other mistakes on your application, you may face processing delays. To avoid that, you may want to work with a tax ID obtainment service when looking for an EIN for your business.
Sole proprietorships need an EIN if they hire any employees including family members. In fact, that is why this number is called an Employer Identification Number. In most cases, you don’t need an EIN for independent contractors, unless they are based in a foreign country or you need to withhold taxes for another purpose. However, employers aren’t the only business owners who need an EIN.
You also need an EIN if your sole proprietorship files an excise tax return or a return related to a retirement account or pension plan connected with your business. On top of that, if your sole proprietorship has an EIN and you purchase a limited liability company (LLC) that has employees, you need to obtain a new EIN for the LLC.
Additionally, many sole proprietors obtain EINs for banking purposes. In particular, if you want to open an account under your business’s name or apply for a business loan, you may need an EIN for your application forms.