If you decide to start a business, one of the requirements will include getting a tax ID number, also called an employer identification number (EIN) or taxpayer ID. This is the number the IRS will use to identify your business, and calculate your tax obligations. Most businesses require the owners to obtain this number. However, there are some instances where you are not obliged to obtain a tax ID number, and we will deal with them in this article.
Businesses which do not require a tax ID number
Although most businesses need to have their own tax ID number, there are some cases when you do not have to require a new tax ID number for the business. This is the case if you run a sole proprietorship or a limited liability company (LLC) where you are the only employee. In such cases, you will simply use your personal tax ID instead of creating a new one for the business. However, if you file pension or tax return, you are required to obtain a new tax ID for the business.
When do you need to obtain a new tax ID number?
There are some cases when you already run a business, but you decide to make some changes. Some of these changes require obtaining a new EIN, no matter if you already had one. If you sell your existing business which has the EIN to someone who wants to run it as a sole proprietorship, they will need a new EIN.
When the structure of business changes, the business owner will also need to obtain a new tax ID number: a change from a sole proprietorship to a corporation or partnership, from a partnership to a corporation or sole proprietorship, and corporation which changes into a partnership or sole proprietorship.
Finally, if the owner of a sole proprietorship or a LLC dies and the state takes over the business, the change of the tax ID is also necessary.
In the digital era, it s not uncommon for people to start their own business and run it online. This is the case when the business owners are not certain whether they need or do not need a tax ID number for their business, or they do not know how to obtain.
Basically, the principle is the same as with any other business. If you decide to run it as a sole proprietor or register it as a LLC with yourself as the only employee, you will be able to use your personal tax ID number for the business. In case you sell goods over the Internet, you will need to pay the tax for the earnings you make. Keep in mind that this is the case even if you do not have the registered company, but you only sell goods online as an individual. However, if you register a business, obtaining a tax ID number allows you to buy raw materials at wholesale prices, which may be suitable for many online business owners who sell the goods they make themselves.