A business identification is a number assigned to an organization, allowing the IRS and other governmental agencies to identify it as a legally organized business.

Obtaining Your Business Identification Number

When you register your business, it is critical to clearly identify the organization to the IRS by using the correct industry codes and identification numbers, as well as filing the proper documentation. If you are operating more than one business type or trade, it can be difficult to find the right code that describes it. No matter how your business is set up, you must be sure to include several pieces of information when you file the annual income tax forms. These items include:

  • Name of the business (if it is registered under a different name than yours)
  • Principal business code
  • Principal profession or business

Most business owners will also need to include the employer identification number, or EIN, on the tax forms.

The IRS requires many types of businesses to file for EINs, which is also called the tax identification number for the organization. An EIN is similar to a social security number but for a business because it is unique to each organization. The EIN is also called the taxpayer identification and the tax ID number. It is a requirement for most business entities and is used by the IRS to determine the tax obligations for each business registered in the U.S. If your business has employees, an EIN will likely be a requirement.

Businesses formed as sole proprietorships aren't always required to obtain EINs or include an identification number on their tax forms. However, the exceptions to this rule include:

  • Businesses that file excise tax forms, including those for firearms, tobacco, or alcohol.
  • Businesses that have Keogh plans.
  • Businesses with at least one employee.

If your business formation doesn't require you to obtain an EIN, you can use your own taxpayer identification number as your business identification number on tax forms. For nearly everyone, the taxpayer identification number is your social security number. When you operate more than a single sole proprietorship, it's important to remain consistent by using the same number on all forms across all of your businesses.

It is critical to use the correct number when filing forms for your business. If you go through the process of acquiring a business that meets the requirements to have an EIN, it is your responsibility as the new owner to obtain a number. Businesses formed as partnerships, corporations, and LLCs must have their own individual EINs.

Certain circumstances may also require you to obtain a new EIN, such as:

  • Changing the current business formation. This include changing from a sole proprietorship to a partnership or corporation, a partnership to a sole proprietorship or corporation, or a corporation to a sole proprietorship or partnership.
  • An estate taking over a business due to the death of the original owner.
  • An individual inheriting or purchasing an existing business and changing the business formation to a sole proprietorship.

Steps to Get a Business Tax ID Number

Before you start the process of obtaining an EIN for your business, it's important to figure out whether it's a requirement. If any of the following apply, you do need an EIN:

  • Your business has one or more employees.
  • Your business withholds taxes on the salaries and wages paid employees.
  • Your business is formed as a partnership or corporation.

Additionally, obtaining an EIN is required if you operate a non-profit organization, trust, or estate. If your business is formed as a sole proprietorship, an EIN typically isn't required, but you can still obtain one and use it on all required forms.

After figuring out if an EIN is required for your business, the next step is filing the application. This process can be done by mail, phone, fax, or online. Filing online is preferred by the IRS because it is faster and more efficient. You will receive your EIN as soon as you submit the online application. Navigate to the IRS website and click on the “Begin Application” button at the bottom of the EIN Assistant page.

This page times out automatically if you are inactive for 15 minutes, so make sure to have all information needed before you start. The application, IRS Form SS-4, is also available online, so you can print it out and fill in the information to have it readily accessible before you start filling it out on the website.

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