If you run an eCommerce business, you’ve probably heard about an Employer Identification Number (EIN) before but depending on the kind of business you run, you might not think it’s necessary to have one.
For example, EINs are typically needed if your company plans to hire, or is in the process of hiring, employees. ECommerce businesses that don’t plan on hiring anyone may dismiss an EIN without realizing all of the other benefits it can provide their business — many of which your company really needs. From protecting your social security number to opening up a business bank account, here’s why it’s handy to have an EIN.
Protect Your Social Security Number
In order to identify your business, you are legally required to use your Social Security Number or an EIN. While sole proprietors often use their SSN on official documents, many are now opting to file for and use an EIN instead.
Why is that? An EIN is much less sensitive than your SSN which could easily be stolen in a case of identity theft, wreaking havoc on your personal matters. Don’t worry that you’ll need to safeguard your EIN either since these are only used as a federal identifier. If you know that you’ll be using your SSN frequently on forms related to your eCommerce business (Editor’s not: like a sales tax registration!), then it’s a smart move to file for and use an EIN as a precaution.
Federal tax ID numbers are a legal requirement for (most) business structures
Have you formed an LLC or incorporated your eCommerce business — or do you think you might in the future? If the answer to either of those scenarios is “yes,” let me quickly break down what happens once you do incorporate.
Your business is now a separate legal entity and you are its employee. As such, is required to have an EIN. This allows the IRS to track the business and ensure it collects payroll tax. Even if you never hire anyone else and you’re the only person working for this incorporated company, you will still need an EIN to keep your eCommerce business compliant. Additionally, if you ever plan to run your business as a partnership, an EIN will be helpful to use since the SSNs of both partners cannot both be used as identifiers.
Everywhere else in between where an EIN is necessary
I mentioned earlier that an EIN is required if you plan on opening a business bank account, but where else does a business need an EIN?
- If you decide to change your organization type
- If you would like to establish corporate business credit
- For establishing pensions, retirement, or trust plans
- Purchasing another ongoing business
- And for all things related to taxes such as paying federal taxes online and filing annual tax returns
It’s also important to note that once a business has an EIN, the identifier never expires or needs to be reissued. Your eCommerce business will likely grow in new, exciting directions you never imagined it might in the future, so it’s a good idea to file for an EIN early and have one ready to keep your company compliant early on.
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @mycorporation.