Regardless of whether you’re a small business owner or own an estate, you would need to comply with federal obligations. And one of many is getting your organization a federal tax identification number.
In general, the identification number is known as the Employer Identification Number (EIN).
What Is EIN?
A 9-digit number usually used to identify a business or another entity of commercial importance is known as EIN.
The real purpose of EIN is to help IRS and federal organizations identify any taxpayer. Some of these entities are listed below.
— Limited Liability Companies
— Sole Proprietorships
— Employee Benefits Plans
— Personal Service Corporations
— Tax-Exempt Organizations, and many more
It is not mandatory for EIN holder to pay taxes. For example, non-profits are also required to obtain EIN, but they are generally tax-exempted.
Why Need EIN?
While keeping track of tax payments is one of the key purposes of EIN, it is surely not the only reason why organizations seek EIN.
Keep reading to find your reason(s).
In many cases, banks mandate it for business owners and estate carers to obtain EIN. As an experienced tax attorney suggests, misplacing EIN may even lead to a declination of loan applications. Not to mention, EIN helps banking institutes and financial companies to estimate the risks involved in doing business with any EIN holder. The tax details are key signals of a companies financial health.
Paying Employee Taxes
For employers, trusts, or even estate organizers, EIN plays a key role in tracking the taxes they pay. This is usually mandatory for employers to help federal agencies track employee tax remittances.
EIN also helps with retirement plannings. All sorts of retirement investments, including 401(k) plans, and mutual funds are subject to federal tax laws. Though the taxes to be paid are lower as compared to income tax and property tax, having EIN can speed up the process. Not just that, EIN can also help with diversifying a personal investment portfolio.
For Filing Bankruptcy
Last but not least is when a company is reporting bankruptcy. We don’t intend to discourage you, but there could be a time when bankruptcy might be the only solution left. For example, if the major shareholder in a partnership withdraws all of their money, and the other partner is left with too meek or no capital to continue operations. EIN is also needed for inheritors of the business. In short, when filing for bankruptcy the government agencies intend to ensure the reasons for the same. Also, the IRS tries to identify if the bankruptcy is a result of any tax fraud.
While it might seem that EIN is necessary for all commercial entities, it is not entirely true. For example, most sole proprietorships are not required to obtain EIN.
Evidently, it would be a lot better to consult with a tax representative to guide you thoroughly. If nothing of the above clears your doubts about obtaining EIN, there’s no better time to connect with your attorney. And accordingly, you can plan your growth and savings.