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If you are interested in setting up a Limited Liability Company (LLC), there are various legal steps you need to take to ensure that you are complying with the law. One important step you may need to take is securing an Employer Identification Number (EIN).
What Is a Limited Liability Company?
First things first. Prior to establishing your LLC and securing an EIN for the business, let’s make sure that you are aware of the defining nature of an LLC.
An LLC is a creation of state law. It is a hybrid entity, in that it can be structured to resemble 1) a corporation for owner liability purposes and 2) a partnership for federal income tax purposes. An LLC offers the limited liability benefits of a corporation and the single level of taxation of a partnership. The owners, not the entity, are then responsible for the payment of taxes, if any.
Longer-term, it is very important that an LLC have an Operating Agreement for the ongoing management of the organization.
What is an Employer Identification Number (EIN)?
An EIN is also referred to as a Federal Tax Identification Number. The EIN is generally used by the government to identify a business entity. Think of it as the equivalent of a "social security number" for your business. In general, every business requires an EIN, and there are several ways to obtain one for your business.
Do You Need an EIN?
In general, you will need an EIN if you answer "Yes" to any of the following questions:
- Do you have employees?
- Do you operate your business as a corporation or a partnership?
- Do you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms?
- Do you withhold taxes on income, other than wages, paid to a non-resident alien?
- Do you have a Keogh plan (A tax deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes)?
- Are you involved with any of the following types of organizations?
- Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
- Real estate mortgage investment conduits
- Non-profit organizations
- Farmers’ cooperatives
- Plan administrators
Do You Need an EIN If You’re a Single Member LLC?
No, the sole member of a single member LLC will not need a separate EIN for the LLC if the person is the sole owner of the LLC and the LLC has no employees. The sole member of a single member LLC can use his or her Social Security Number instead of applying for an EIN.
How Can You Apply for an EIN?
The Internet EIN application is the easiest method to apply for and obtain an EIN. This is a FREE service offered by the Internal Revenue Service (“IRS”). You can access the Internet EIN application online at: https://sa1.www4.irs.gov/modiein/individual/index.jsp.
Once the application is completed, the information is validated during the online session, and an EIN is issued immediately. The online application process is available for all entities whose principal business, office or agency, or legal residence (in the case of an individual) is located in the United States or U.S. Territories. The principal officer, general partner, grantor, owner, trustor, etc. must have a valid Taxpayer Identification Number (Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number) in order to use the online application.
Apply By Toll-Free Telephone Service
Taxpayers can obtain an EIN immediately by calling the IRS Business & Specialty Tax Line at (800) 829-4933. The hours of operation are 7:00 a.m. – 10:00 p.m. local time, Monday through Friday. An assistor takes the information, assigns the EIN, and provides the number to an authorized individual over the telephone. Note: International applicants must call (215) 516-6999 (Not a toll-free number).
Apply By Fax
Taxpayers can fax the completed Form SS-4 (PDF) application to their state fax number (see the IRS web site, or download Form SS-4 here), after ensuring that the Form SS-4 contains all of the required information. If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type. If the taxpayer’s fax number is provided, a fax will be sent back with the EIN within four (4) business days.
Apply By Mail
The processing timeframe for an EIN application received by mail is four weeks. Ensure that the Form SS-4 contains all of the required information. If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type and mailed to the taxpayer.
Other Important Information
The Third Party Designee section must be completed at the bottom of the Form SS-4. The Form SS-4 must also be signed by the taxpayer for the third party designee authorization to be valid. The Form SS-4 must be mailed or faxed to the appropriate service center. A third party designee may call for an EIN; however, a faxed Form SS-4 with the taxpayer’s signature is still required. IRS employees will take the information over the phone from the third party designee and ask the third party to fax the completed Form SS-4 to them (to the IRS assistor’s attention) at an administrative fax number. After receiving the faxed Form SS-4, the EIN will be assigned and faxed back to the third party designee, or given over the phone. The third party designee’s authority terminates at the time the EIN is assigned and released to the designee.
Source: Internal Revenue Service