Starting and owning a small business is not an easy task. While it brings a lot of excitement to the owner, he/she also needs to be responsible for all its actions. One important part of running a business is obtaining necessary licenses, for which a business needs to have a tax ID.
A tax ID is officially known as Federal Tax Identification Number or EIN. The EIN is a unique 9-digit number issued by the IRS to a business or startup.
Why do businesses need a tax ID?
A tax ID is important for businesses to hire people, open and maintain bank accounts, file tax returns and obtain licenses. Even non-profits seeking exempt status from the IRS must apply for an EIN. It is also required for all local and state reports/filings.
How to obtain tax ID for small businesses?
Obtaining an EIN for your business is not a Herculean task. You can follow the below steps to obtain tax ID for your startup:
- Have all the necessary papers in place before and after setting up your business.
- Once you have the necessary documents, apply for a tax ID on the official site of IRS. You can even ask your accountant or financial institution to apply on your behalf.
- You also need to have all the important information at hand before applying for an EIN. This information includes the legal name and structure of your business, physical mailing address etc.
- There are 2 ways to obtain an EIN from the IRS-
- Download the IRS Form SS-4 from its website and fill it up. Fax or mail it afterwards.
- Submit an online application for EIN. In that case, the confirmation will be emailed to the concerned person.
If in case you are a sole proprietor, your SSN can serve as the tax ID for your business.