Hi, I'm Tony here
at The Really Useful Information Company
and today, we're talking about EINs.
We'll discuss what they are, why you might want or need one,
and how to apply with the IRS for free.
(chimes)
So what is an EIN exactly?
Simply put, an EIN is like a Social Security number
for your business.
What EIN actually stands for
is Employer Identification Number.
As the name implies, an EIN is a number that the IRS issues
to be able to tell businesses apart from one another.
You can also find it called FEIN
because someone decided they wanted the word federal
in front of it
or you can find it referenced
as your business's Tax Identification Number.
Whatever you decide to call it,
you'll probably want to know if you even need an EIN.
For this, the key word is employer.
If your business has or is going to have employees,
you'll need an EIN.
Additionally, any business that is either a partnership
or a multi-member LLC has to have an EIN too.
The partnership return
that these business structures have to file with the IRS
requires an EIN.
While this technically means
that businesses that are sole-proprietorships
or single-member LLCs without employees
can function without an EIN,
there are plenty of reasons you might still want one.
First, most banks will require you to have an EIN
before they'll let you open a business bank account.
A separate bank account for your business
is something you will want.
A business bank account makes it easier
to track what is or is not a business expense
and lets your business build credit
and qualify for more loans.
Second, as we mentioned before,
if you want employees, you're going to need an EIN.
Getting an EIN early on lets you be prepared for the future.
Third, having an EIN
can make your business appear more credible.
Business owners often prefer to work with other businesses
versus just a person doing something on their own.
And finally, having an EIN helps maintain separation
between what is yours personally
and what belongs to the business.
Now, knowing all the reasons you might want an EIN
won't do you any good if you don't know how to get one.
Fortunately, applying for an EIN is easy and free.
You do so through the IRS website
and it can be done in five minutes.
Now keep in mind, you are only able to use the IRS portal
between the hours of 7:00 a.m.
and 10:00 p.m. Eastern Standard Time.
To begin, the first thing the IRS is going to ask you
is what type of legal structure
are you choosing for your business.
They give you six options on the first page,
with the option to view 23 other legal entity types.
For the context of this video though,
we're going to keep it simple
and stick to running you through the process
of getting an EIN for an LLC.
You'll be able to get the idea
and also have insight into what sort of information
you'll need for every business type.
After you have selected limited liability company
as your business structure,
you'll be taken to a page
to fill out some of the basic details of your LLC.
On this page you will select the state
your business is physically located in
and how many members your LLC is going to have.
Depending on what you answer for this section
will determine which screen you see next.
If you enter one as the number of members,
you will get a different confirmation screen
than if you enter two or more.
And this is actually because a single-member LLC
behaves differently than a multi-member LLC,
at least in the eyes of the IRS.
See, limited liability companies
have what are known as default tax statuses
and these are different for single-member LLCs
or multi-member LLCs.
A single member LLC is, by default,
taxed as a disregarded entity
and a multi-member LLC is, by default,
taxed as a partnership.
Besides these default elections
of disregarded entity and partnership,
there are two other elections you can choose,
an S corporation and a C corporation.
Briefly, an S corporation will help you reduce the amount
of self-employment taxes you will have to pay.
You would select an S corporation,
one, if you're going to make a sufficient amount of profit
and two, you'd be taking all of that profit
out of the LLC each year and not reinvesting.
On the other hand, you would choose a C corporation
if you plan to raise money from professional investors
and reinvest income back into the company.
But remember, both these options
require more paperwork and maintenance
and have increased associated costs.
For most people, the default elections are probably best.
You and any other members of your LLC
will pay taxes on your own personal tax returns
and you can always elect to change your tax status later.
We'll have all the details of everything you need to know
about business and tax structures in our
"What Structure Should I Choose For My Business?" article
that we will link in the description below.
Once you've clicked through the confirm screen,
you'll be asked to click on an option
for why you are getting an EIN in the first place.
You'll have five options.
One, because you are starting a new business.
Two, because you have hired employees.
Three, for banking purposes.
Four, because you're changing the type of your organization.
Or five, because you have purchased an active business.
Most people will choose it's because they've hired employees
or for banking purposes.
After you've selected your business's purpose,
you'll be greeted with the question
of who is the responsible party?
This is basically a fancy way of asking
who is trying to get this EIN?
Is it the owner, a member, or a manager of the LLC?
Or is it a third party?
If you are trying to get an EIN on someone else's behalf,
you are a third party
and you will have to fill out a bit of extra information.
First, you'll have to state
if you are a third party designee,
which just means someone has in fact
given you their blessing to get an EIN.
If you say yes,
you'll be taken to a screen that has you affirm
that someone has completed a form
naming you as their designee.
If you say yes,
you'll continue on the normal path I'll explain in a moment,
but if you say no here,
you'll be given instructions
for unauthorized third parties.
Here the IRS states, quote,
"You are not authorized to receive an EIN
"on the taxpayer's behalf.
"However, you may continue with the online application
"and upon successful completion, an EIN will be assigned."
For most people, however,
as soon as you've said
that you are an owner, member, manager,
or third party designee,
you'll be prompted to fill out
the company's physical address,
and if different, its mailing address.
Next, you'll get to the screen called tell us about the LLC.
Here you will need to provide, one,
the legal name of the LLC,
which is why it may be best
to wait until your business is formed to get an EIN,
two, any trade names or DBAs you're using,
three, the county and state
where the business is physically located,
four, the state in which the formation documents were filed,
and finally five, the month and year the LLC was formed.
Once you're done with tell us about the LLC,
there comes tell us more about the LLC.
Here on this screen, you'll be asked to say yes or no
to some rather specific questions.
Namely, does your business involve
using a truck over 55,000 pounds?
Does your company involve gambling?
Are you going to have to fill out IRS Form 720
and file quarterly Federal Excise Tax Returns?
We'll link IRS Form 720 below so you can see for yourself,
but most of the time that's gonna be a no.
Does your business produce
or sell alcohol, tobacco, or firearms?
And finally, the one relevant
to most people trying to get an EIN,
are you, in the next year,
going to have employees that you will need to have W-2s for?
Believe it or not,
that last question is the only one
that will get you an extra screen with the IRS.
On this extra screen, you will be asked to estimate
to the best of your ability
how many employees you think you will have this year,
how many agricultural employees you think you will have,
if you expect your withholding taxes collected
to be less than $1,000 this year,
and the date you did or expect to start paying wages.
Then, comes the home stretch.
You'll have two more screens of bubbles to fill out
asking you what the business will be used for,
a final confirmation that all the details are correct,
and then you're done.
Now, I know this seems like a lot.
But I can assure you,
having gone through this process many times
to research for this video,
you can actually get all of this information
filled out quickly, in often under five minutes.
The IRS actually does a very good job
making this process go smoothly.
If you have any questions
about anything we've talked about here today,
make sure to leave us a comment below.
For detailed guides, check us out at HowToStartAnLLC.com
and make sure you like this video
and subscribe for more really useful information.
I'm Tony here at TRUiC, and thanks for watching.
(calm music)