Business entities—corporations, partnerships, and limited liability companies—must use EINs. But most sole proprietors don't need to get an EIN and use their Social Security numbers instead. Even so, you might want to obtain an EIN anyway.
If you’re a sole proprietor, you must have an EIN if you:
Also, some banks require you to have an EIN before they’ll set up a bank account for your business.
If you're a sole proprietor, you don't have to get an EIN if you have no employees and started your own business, instead of buying an existing business.
So long as you don't switch to another business form such as a limited liability company or corporation, you can use your Social Security number for tax purposes. Many sole proprietors use their Social Security numbers for decades.
You can get an EIN even if it isn't required. Two good reasons to use an EIN instead of your Social Security number are to avoid identity theft and to help establish independent contractor status.
The theft of taxpayers' identities is a rampant problem. Identity thieves steal taxpayers' Social Security numbers and use them to file fraudulent tax returns and get tax refunds. For this reason, it's wise to keep your personal Social Security number as private as possible.
If you perform personal services as an independent contractor, you must provide an EIN or Social Security number to your clients, or the client will be required to withhold 24% of your payments. Obtaining an EIN allows you to avoid having to provide your Social Security number to clients and other members of the public.
Using an EIN on your tax returns and payments also helps to show that you’re an independent businessperson. In other words, you're an independent contractor and not an employee. This status can make you more attractive to prospective clients.
Getting an EIN is easy and free. The fastest and easiest way is to apply directly at the IRS website. The IRS has an online EIN Assistant tool you can use.
If you aren't comfortable sending information via the internet, you can download IRS Form SS-4, Application for Employer Identification Number and send it by postal mail. Or you can get your EIN by calling the IRS at 800-829-4933 from 7:00 a.m. to 10:00 p.m. local time (Pacific time for Alaska and Hawaii).
]]>To promote employee goodwill, my partners and I would like to give out turkeys and hams this holiday season. We also want to give the employees $100 apiece. Can the partnership deduct the cost of the items given, even though the merchandise is not wages or salaries? Are the gifts subject to withholding?
You can deduct the cost of turkeys, hams, or other tangible gifts you give to employees as long as the value does not exceed $25 per year per employee. They qualify as business expenses, and the gifts are not taxable to the employees or subject to withholding.
Cash -- or cash equivalents, such as gift certificates -- are looked at differently through the tax authorities' eyes, however. You must treat such gifts as additional compensation, no matter what the amount. These gifts are subject to withholding.