Forming a limited liability company (LLC) is one of the most popular choices for starting a business in the United States. An LLC offers both personal liability protection as well as pass-through taxation, making it an appealing structure for many types of businesses.
One of the steps in forming an LLC is obtaining a tax ID number, also known as an Employer Identification Number (EIN). This unique identifier allows your LLC to pay taxes and do business on a federal level.
An LLC needs a tax ID number called an EIN to legally operate – this unique number identifies the business to the IRS. All multi-member LLCs must obtain their own EIN, while single member LLCs can use the owner’s SSN but an EIN is still recommended. The fastest way to get an EIN is to apply online at the IRS website by providing your official LLC details and responsible party information.
In this comprehensive guide, you’ll learn everything you need to know about getting a tax ID number for your LLC, including:
- What is an LLC?
- What is a Tax ID Number/EIN?
- Who Needs a Tax ID Number for an LLC?
- How to Apply for a Tax ID Number
Let’s get started!
What is an LLC?
An LLC is a business structure that combines aspects of partnerships, sole proprietorships, and corporations.
LLCs consist of members rather than shareholders. These members can be individuals, partnerships, corporations, or other LLCs. Members enjoy limited personal liability protection for business debts and obligations.
Unlike sole proprietorships and partnerships, members’ personal assets are protected in an LLC. Creditors cannot seize a member’s home, car, or bank accounts to pay off business debts.
LLCs also benefit from pass-through taxation. Rather than paying taxes itself, a multi-member LLC passes profits and losses onto the individual members to report on their personal tax returns. A single member LLC is considered a “disregarded entity” by the IRS, so taxes also pass through to the individual owner.
Overall, the perks of personal liability protection and pass-through taxation make LLCs a very popular choice for small businesses.
What is a Tax ID Number/EIN?
A tax ID number, also known as an Employer Identification Number (EIN), is a unique 9-digit number assigned by the Internal Revenue Service (IRS) to business entities.
Think of it like a Social Security Number (SSN) for your business. Just as you have an SSN to identify yourself for tax purposes, your LLC will have an EIN to identify itself as a separate business entity when paying federal taxes.
EINs are used to:
- Open business bank accounts – You need an EIN to open a bank account for your LLC.
- Pay business taxes – An EIN is required to report and pay employment, excise, and other federal business taxes.
- Hire employees – You must have an EIN to pay wages to employees and file required returns.
So if you plan to open a bank account, pay taxes, or hire employees for your LLC, applying for an EIN is a crucial step.
Who Needs a Tax ID Number for an LLC?
The IRS requires all LLCs with multiple members to have their own EIN. Single member LLCs can use the member’s SSN when paying taxes.
However, it is recommended that even single member LLCs get an EIN. An EIN adds credibility to your business and keeps your SSN private.
You must obtain an EIN if your LLC:
- Has multiple members
- Plans to hire employees
- Files taxes as a corporation or partnership
- Has an ownership change (e.g. member addition)
- Plans to open a business bank account
Again, EINs are mandatory for multi-member LLCs. But an EIN can benefit any LLC, so speak with your accountant about your individual situation.
How to Apply for a Tax ID Number
Now that you know what an EIN is and who needs one, let’s discuss the application process to get your LLC’s tax ID number.
The IRS offers several ways to apply:
- Online – Fastest method, receive EIN immediately
- Mail – Send completed SS-4 application form
- Fax – Fax completed SS-4 application to IRS
- Phone – Call IRS business specialist to apply
We recommend applying online for the quickest turnaround. Here are the steps:
Step 1: Gather Information
First, you will need to have the following information handy before starting your EIN application:
- LLC name
- LLC address
- LLC ownership information (names and SSNs of members)
- Responsible party name and SSN
- LLC formation date
- LLC business activity
Make sure this information exactly matches what is in your LLC formation documents.
Step 2: Visit IRS Website
The EIN assistant will guide you through each step of the application.
Step 3: Choose LLC as Business Type
When prompted, choose “Limited Liability Company” as the legal structure applying for the EIN.
Step 4: Enter LLC Details
Next, enter your LLC’s official name, address, formation date, ownership details, and responsible party (a member who controls the LLC).
Double check that all details match your LLC paperwork before submitting.
Step 5: Receive EIN Confirmation
After submitting, your EIN will display on screen. Print and save this page for your records. You will also receive an official IRS confirmation letter in the mail.
And that’s it! With an EIN, your LLC can open business bank accounts, pay taxes, and conduct business legally on a federal level.
Start Your LLC off Right with an EIN
As a new LLC, obtaining your EIN is a key step in establishing the business from a legal and tax standpoint. With an EIN, you can bank, hire employees, pay taxes, and fully operate as an official business entity.
While the EIN application process may seem daunting, it is free, fast, and straightforward when you apply online. Within minutes, you can have your EIN and take the next steps in structuring your growing LLC.
With the right business structure and tax compliance setup, you’ll be prepared to manage finances and operations as you turn your entrepreneurial dreams into reality!
Obtaining a tax ID number is a crucial step for any new or existing LLC. This unique EIN identifies your LLC as a separate business entity in the eyes of the IRS. While single member LLCs can use a member’s SSN, all multi-member LLCs must get their own EIN. Even for single member LLCs, an EIN adds legitimacy and keeps your personal SSN private.
The online EIN application through the IRS website is free, fast, and easy. In just minutes, you can have your EIN and move forward with opening business bank accounts, hiring employees, and managing your LLC’s taxes properly. Structuring your LLC with the proper tax ID number and compliance helps set up your business for smooth operations and growth.
With the right information and preparation, getting an EIN for tax purposes is a simple process. Consult with business advisors to determine if an EIN is recommended for your situation. If so, apply online today to quickly obtain your tax ID number and operate your LLC by the book.
Frequently Asked Questions (FAQs)
Does it cost money to get an EIN?
No, obtaining an EIN is free whether you apply online, by mail, by fax, or phone.
How long does it take to get an EIN after applying?
Online applications receive the EIN immediately after submitting. Other methods take 4-5 weeks to receive the official IRS letter with EIN.
Can I apply using my existing LLC?
Yes, you can get an EIN for your existing/already formed LLC. Make sure to use the original formation details.
Can I apply for an EIN before forming my LLC?
No, you must form your LLC first since the EIN application requires official LLC details.
Can I use my SSN instead of getting an EIN?
Single member LLCs can use the member’s SSN, but getting an EIN is recommended for added credibility and privacy.
What if my application is rejected?
Double check all information entered matches your LLC paperwork. If it is still rejected, contact the IRS help line to determine next steps.
Aisha Noreen is an owner of a small business with more than 9 years of experience in the marketing industry. With the wisdom of an old soul, she always seeks innovation and mind-blowing ROI techniques. Her unique approach helped many small businesses thrive and she can surprise you in many ways as well. Believe it or not, her energy, passion, and creativity are contagious enough to transform your business and take it to another level.