Obtaining an EIN or employer identification number is a good
idea if you are a sole-proprietor.
>From time to time, you'll be asked to provide your social
security number or employer ID to clients or governmental
agencies. Once you do that you have no control over which client
employees and others can view your number.
With identity theft an ever increasing problem, reducing the
need to give out your social security number can only be a good
idea.
The best way to do that is to have an employer identification
number.
In fact, having an EIN is mandatory for almost any business that
is set up as something other than a sole-proprietorship.
This is the IRS checklist for businesses that are required to
have an Employer Identification Number.
• You have employees. • You are set up as a corporation or
partnership. • You file tax returns for Employment, Excise, or
Alcohol Tobacco and Firearms. • You withhold taxes on income,
other than wages, paid to a non-resident alien. • You have a
Keogh plan. • You are involved in a trust. (There are some
exceptions, check the IRS site). • You are involved in one of
the following types of organizations: Estates, real estate
mortgage conduits, non-profits, farmer's cooperatives, and plan
administrators.
Sole-proprietors are not required to have an EIN. But if you are
a sole-proprietor, I strongly recommend getting one.
The reason? If you are a sole-proprietor, clients who pay you
$600 or more in the course of a year must file a 1099 on your
behalf. And they need your social security number or employer
identification number to do that.
And you, in turn, are required to do the same for your own
sole-proprietor subcontractors who receive $600 or more in
payments from you.
The Employer's ID number fulfills IRS's requirements when filing
your 1099s, so you just substitute the EIN for the social
security number.
The process is easy and straightforward.
You can apply for your EIN number online at the IRS website
(www.irs.gov) or ask the IRS to have the forms sent to you.
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