Feb
18
Employer Identification Number
February 18, 2007 | 1 Comment
A requisite for any serious business is to get a Federal Employer Identification Number (EIN). It is the business-world equivalent of the Social Security or Taxpayer Identification Number. You will need to use it to register tax payments of all kinds, including Social Security, Medicare, and Income taxes. Most importantly, you will need it to register the business as a Corporation or a Limited Liability Corporation (LLC).
The easiest way to fill out the form is online. Otherwise, print the PDF file and send it by mail. Uncle Sam also provides some valuable information on the tax implications of starting a business in the IRS Website.
The form is in itself a bit confusing. It is needed to form a business, and yet, you must enter the business name even before it is approved by the state authorities. I guess Uncle Sam likes to make sure they take care of the tax business before they take care of anything else. The good thing is that the form is free, so you are running little risk here.
If you are starting a small business (S Corporation or an LLC), chances are that you are going to enter your name twice as primary contact/trustee and as principal officer.
The rest of the form sounds too simple to be true and really is. You establish that you are starting a new business, the type of business (partnership for an LLC if it has more than one member), when the business starts, when do you expect to pay wages (approximately when you actually get some money from customers), and how many employees you expect (probably one or two).
You also have to enter a type of business and an explanation of the specific services or products you offer. You do not want to make it too specific, as you may want to explore extending your business later. If you want to do consulting, you can give a reason like “Computer and computer network services and consulting” for example. It is different from business, or construction consulting (making it specific), but not too specific like it would have been “web site design”.
Usually you do not need to specify a third party. Just sign and date the form and send it. You will most probably receive your EIN right there, online. You will also get paperwork by mail on how to pay taxes: Uncle Sam is extremely efficient at asking for money.
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[...] My administrative worries do not end there. I will have to open a business checking account as soon as I return to Massachusetts (I think Citizens Bank is the chosen one). For that I needed the Articles of Incorporation that I believe are the ones provided as a result of the Limited Liability Corporation process I went through. I also needed an Employer Identification Number to open the account — similar to a Social Security Number, but for Corporations. I will also have to learn about bookkeeping, taxes, self employment taxes, Self Employed Retirement Plans, and things I wouldn’t even imagine existed before. I will certainly learn how to handle invoices, and I had already started learning how to handle contracts: as I had to establish a few agreements before my engagement started. [...]