Tax ID Number – What You Should Know?
You’ll almost certainly need to submit a tax ID number, also known as a TIN or tax ID number while filing your tax return or contacting the IRS. The IRS uses your tax ID number to differentiate your company from other 28 million small businesses registered in the United States. It isn’t, however, a one-size-fits-all number.
For your business, there are a few different kinds of ID numbers that can be used as tax IDs. Here’s how to figure out if you really need a tax ID number, how to get it, and what variations are available.
What’s the Tax ID Number?
A tax identification number, or TIN, is a nine-digit number that the IRS uses to identify you and your business. It’s necessary for your tax return, and it’s also needed in other dealings with the IRS. You can use this number to submit your taxes. A tax ID number is also a must if you want to create a business account or seek a bank loan. The most frequent tax ID numbers are Social Security numbers, however, the ITIN, EIN, ATIN, and PTIN are also popular.
Do You Need a Tax ID Number?
If you run a one-person LLC or a sole proprietorship with no employees, you don’t really need a tax Identification number to submit your taxes.
To report taxes, all other business formations, including those with workers, require tax ID numbers.
You’ll also need this number for commercial banking, as previously stated.
Why You Should Get a TIN if You Are a Business Owner?
Even if you don’t need a tax Identification number to submit your taxes right now (for example, since you do not have employees), getting one as soon as you start a business is in your best interest. Applying for an EIN is your best option.
Why is there such a rush? Obtaining an EIN is free of charge and takes little time or effort. It allows you to expand your company in the future. You’ll be able to open a business bank account, employ people, or restructure your company when the time comes. When your hands are full making sure your business expands, obtaining a tax ID number now will save you a hassle later.
The Difference Between TIN and EIN
Making a distinction between a TIN and an EIN is helpful in understanding how tax IDs function. The IRS uses these names to distinguish between the various types of Tax IDs. Some people believe these numbers are the same, and in some circumstances, they are correct.
A TIN is a general Tax Identification Number, whereas an EIN is a unique Employer Identification Number. An EIN is by definition a type of TIN. A TIN, on the other hand, might refer to any tax identification number that isn’t an EIN.
If you’re not sure what the difference between an EIN and a TIN is, let’s start with the EIN, which is a US-based corporate tax number. This will aid in the clarification of the fundamental distinctions.
What Exactly Is EIN?
Your EIN distinguishes your company when submitting a company tax return. In the same way that your Social Security Number identifies you on your personal taxes. To create a business checking account, submit business tax returns, and qualify for essential permits, you’ll need an EIN. As a result, the distinction between an EIN and a tax ID number has to do with their purpose for filing.
An employer, a sole proprietor, a partnership, a company, a non-profit, a government agency, a foundation, some individuals, or a corporate body may all require an EIN.
While all businesses require a tax ID number, the type you’ll use is determined by the type of business you run as well as your citizenship, and residency in the United States.
In all circumstances, though, applying for an EIN is the simplest option. It will save you time in the long run and can be used to open a business bank account or take a loan for your company.
As you already know taxation process is a very complicated subject. If you have questions or dilemmas regarding the best way to structure and organize your small business, YPTA is here for you! Contact us today and ease your mind!