Choosing an entity type for your business can be a confusing process. Businesses may seem the same from the outside, but there are some important differences at tax time. Which entity type you choose can have a major effect in how much you pay in business taxes. Once you apply for an Employer Identification Number (EIN), it is quite difficult to change your business entity type. Therefore, you must decide carefully. Is your business a corporation or a partnership, or are you a sole proprietor Tax ID number applications might be the same for all these entities, but they pay taxes differently. No matter your entity type, the procedure to apply for EIN is the same.
The Various Types of Business Entities
Any type of entity that is required to pay taxes must have a taxpayer ID number. For individual human beings (“natural persons”), the ID number is a social security number. For any other entity (“fictitious persons”) that engages in financial transactions, the ID number is an EIN. It is no surprise that businesses that actually pay employees need an EIN. These entities include corporations, partnerships, and LLCs, among others. Other entities, such as trusts, also need an EIN, even though they are not, strictly speaking, employers.
How to Apply for an EIN
The process of applying for an EIN is very fast and simple. All you have to do is fill out an EIN application form online. Once you fill out the form, you will receive your EIN by email on the same business day. Your EIN will become official within a month, when you receive a physical conformation letter from the IRS.
Whether you are opening a corporation or just hiring a babysitter, you need an EIN. No matter the entity type, the application process is the same.