Every LLC, corporation, and partnership must have an Employer Identification Number (EIN), which is also known as an FEIN (Federal Employer Identification Number), in order to file taxes. Plus, many banks, credit card companies, and vendors insist upon having your EIN, so this should be one of your first steps after forming your business. To get your Employer Identification Number (EIN), you need to apply with the Internal Revenue Service (IRS) online, by fax, or by mail.
This article discusses how to get an EIN—including whether your business needs one or more than one.
Regardless of how you operate your business (sole proprietorship, LLC, S Corp, or C Corp), when you file your annual income tax forms, you must provide the name of your business (if it's different from your own name), your principal business or profession, and your principal business code.
In most cases, you must also supply your federal employer identification number (EIN). Although many sole proprietors can use their social security number for federal tax purposes, they must get an EIN if the business has one or more employees (including the owner); has a Keogh plan; withholds taxes on income (other than wages) paid to a non-resident alien; or has to file an excise tax form (such as alcohol, tobacco, firearms or highway use).
If you operate more than one business as a sole proprietor, you should (in most cases) use the same EIN (FEIN) number for all of your businesses.
In contrast to sole proprietorships, each partnership, LLC, and corporation must always have its own EIN. If you operate more than one LLC or corporation, each business entity must have its own EIN.
CT tip: It is crucial that you use the correct identification number. Using the EIN of the previous owner of your business can lead to major problems.
How to apply for an EIN
You apply for an EIN with the Internal Revenue Service (IRS). Businesses located in the United States can apply for an EIN for your business in one of three ways:
- by fax
- through the mail
The IRS recommends that foreign businesses apply over the phone, but they also provide the option to file via fax or through the mail.
Regardless of which method you use, the IRS will issue only one EIN per day per responsible party.
Applying for an EIN online
Applying for an EIN online is the most efficient and quickest way to obtain an EIN for your business. Once the “interview style” application is submitted with all fields entered correctly, the EIN is issued on the spot.
However, although your number may be immediately issued to you, you must wait up to two weeks before you can file an electronic return; make electronic deposits; or pass an IRS Taxpayer Identification Number (TIN) matching program. During this time, your business can use its EIN for other purposes, including setting up bank accounts and filing paper returns.
CT tip: When applying for an EIN online, be prepared. Online sessions time out after 15 minutes of inactivity, so it's a good idea to complete the Form SS-4 (Application for Employer Identification Number) in advance so you are prepared to properly fill out all the fields.
You can use the internet to apply for your EIN number whether your business operates as a sole proprietorship, partnership, LLC, or corporation. Foreign applicants who do not have an Individual Taxpayer Identification Number (ITIN) cannot obtain an EIN via the online portal. The following criteria determine whether your business qualifies for online application:
- The principal business, office or agency, or legal residence (in the case of an individual), must be located in the United States or U.S. Territories.
The principal officer, general partner, grantor, owner, trustor, etc. must have a valid Taxpayer Identification Number (Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number.) Also, to help reduce the risk of tax identity fraud, the IRS will not process an online application if the responsible party is an entity with an EIN previously obtained through the Internet.
Applying by fax, mail or phone
Applying by fax: You can fax your completed Form SS-4 to the fax number listed on the IRS website. If you provide your own fax number, a fax will be sent back with the EIN generally within four business days.
Applying by mail: Using mail to obtain your EIN is the slowest method of application. The processing time for an EIN application received by mail is approximately four weeks—provided that everything on the form is properly completed.
Applying over the telephone: If you reside in the United States, you cannot apply for your EIN over the telephone. If you are not in the United States, you can apply by phone by calling 267-941-1099 between 6:00 a.m. to 11:00 p.m. (Eastern Time), Monday through Friday. But beware! This is not a toll-free number.
Use the correct business code or run into trouble
Regardless of your business form (e.g., sole proprietorship, partnership, LLC, C corporation, or S corporation), you must correctly identify the type of business that you are running. To do this, you enter a six-digit business code at the top of your annual income tax form you file for your business.
Why is it so important to use the correct business code? The IRS educates its agents about typical operating procedures in different industries and in specific types of businesses, in order to equip the agents to identify businesses under-reporting income and overstating deductions. The IRS may screen your tax return to determine whether your income and expenses are unusual for that type of business indicated by your business code.
If you use the wrong business code, the IRS may notice the incorrect standard. If so, they may decide to dig further into your return (and ask you to produce more records to prove your figures).. You can find the correct business code by consulting the complete list of codes that is included in the IRS instructions to the tax form you are required to file:
- Sole Proprietor (and LLCs taxed as disregarded entities): Instructions for Schedule C or Schedule C-EZ
- Partnerships (and LLCs taxed as partnerships): Instructions for Form 1065
- S Corporations (and LLCs taxed as S Corps): Instructions for Form 1120S
- C Corporations (and LLCs taxed as C Corps): Instructions for Form 1120
What if it seems that your business doesn't fit into any one business code? If this is the case, you should first consider whether you actually operate two (or more) different businesses. If so, you'll want to report the income and expenses from each business separately.
However, if you believe that you are operating only one business, then you should use the code that accounts for the highest percentage of the total receipts of your business. The IRS does provide a code, 999999, for business owners filing a Schedule C or Schedule C-EZ that are unable to classify their operations, but we suggest that you use this only as a last resort.
Schedule C: Each business needs its own business code
It's not uncommon for a successful business owner to expand the initial business into additional, related activities. In addition, many business owners may operate completely separate businesses.
If you operate more than one distinct business, it is essential that you use the proper business code for each business. Also, if you have two or more separate business activities, you usually can't report them both on the same Schedule C.
Example: Mary enjoys making clothing. She begins to sell her clothing at various craft shows in the area. Many of the people who purchase her items express a desire to learn to make clothing themselves. She then decides to offer a series of classes covering different styles of clothing. Mary is engaged in two separate businesses and should file a Schedule C for each business.
Unfortunately, there is no explicit rule as to whether you are operating more than one business because the facts and circumstances can vary so much from case to case. The questions found in the instructions for Form 5213 (Election To Postpone Determination as to Whether the Presumption Applies That an Activity Is Engaged in for Profit) can also help you determine if you are engaged in more than one type of activity.
In general, if you provide similar products or services to similar clients, you have a single business. If the products or services are different or if the client base is different, you may have more than one business depending on how close the relationship is between the activities.
In certain cases, you must file a Schedule C, or an additional Schedule C, because of the type of compensation that you received from a company. So, if you receive income as a “statutory employee,” a grouping that includes full-time life insurance agents, agent or commission drivers and traveling salespersons, and certain homeworkers, you must report this income on a Schedule C. If you also receive other income as a self-employed person, don't combine the two types of income. You must file a separate Schedule C for each type.
Lastly, keep in mind that the tax law provides for separate treatment of “passive activities.” Income or losses from a passive activity can only be offset by income or losses from other passive activities. Real estate rentals are most often classified as passive activities, which must be reported on Schedule E, Supplemental Income and Loss, not Schedule C.
So, if your business involves some rental or leasing activities, you may need to treat the income and expense from these activities as separate passive activities.