Do I Need An EIN If I’m Filing For A Sole Proprietorship?

by Justin Weinger on February 10, 2017

If you are self-employed, or freelance as an independent contractor, you will need to declare your status for the IRS. This can be done in several ways, including making your business a sole proprietorship. If you are applying as a sole proprietor, you have an option as to whether or not to get an EIN. Below is a bit more information on why you may not need an EIN, but will perhaps want one anyway, in which case you can apply for an EIN online.

Do I Need an EIN?: If you are a sole proprietor who does not file pension or excise tax returns, you do not need an employer identification number (EIN). However, you still need to apply for a federal tax ID which, if you don’t have an EIN number, will be your social security number. While skipping the application process is convenient, there are quite a few benefits to getting an EIN.

Why Apply for EIN Online?: You can apply for an EIN online and get your number immediately. This number will forever identify your company and will allow you to expand your company in the future. If your company stops making money, or you decide to pursue a different career path, you can close your account with the IRS for that business. If won’t erase the EIN, but you’ll no longer pay taxes, and you will have a chance to re-open with the same EIN in the future.

EIN Benefits: An EIN also allows you to do things like file for bankruptcy, have a Solo 401K retirement plan, partner with other companies, buy or inherit a company, or hire employees. Using an EIN instead of a personal social security number also helps protect you and your proprietorship from fraud, and makes you look more professional to potential employers.

The IRS has clear guidelines on who can apply for sole proprietorship, instead of for other tax categories. If you are uncertain, contact them as soon as possible to get the information you need to file correctly; this will save you a headache in the future.

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