Frequently Asked Questions About the Federal Tax ID
You are familiar with federal tax ID but you do not know its particulars. If you are a new business owner, it is time that you know more about it. Before you make money, you must be in line with the law. To start, here are the frequently asked questions about the federal tax ID:
What is the difference between EIN and federal tax ID?
If you are confused between EIN (Employer Identification Number) and federal tax id, it is time that you know more especially if you are a business owner. In most cases, these two are used interchangeably. However, if you want to know the difference, you should know the technical meanings.
IRS (Internal Revenue Service) issues federal tax ID as a means to identify businesses and individuals for taxation purposes. EIN is a type of tax ID that is issued only to businesses as a different tax entity from individuals.
What are the types of TIN (Tax Identification Number)?
You must know that there are five types of tax identification numbers namely the EIN, SSN (Social Security Number), ITIN (Individual Taxpayer Identification Number), ATIN (Adoption Taxpayer Identification Number), and PTIN (Preparer Taxpayer Identification Number).
If you are not sure about the type of TIN you need for your business, you can consider the IRS’s filing service website. To start, you simply fill out the form provided and then apply for a tax ID. It is easy so you should not worry about it.
What are the uses of EIN?
There are several uses of EIN. It can be used to:
- Open lines of credit or bank accounts.
- File tax returns electronically.
- Make payments electronically.
- Apply for business permit or license.
- Tie employees to the employer for sending the taxes withheld from the former’s paychecks.
- File tax returns as well as different business documents.
- Who needs this?
You can apply for a tax ID if you fall under the following categories:
- If you file an employment-related tax return or if you have employees.
- If you withhold income tax while making a type of payment.
- If you are a corporation, LLC or a limited partnership.
- If your business is transacting with estates, trusts, farmers’ cooperatives, nonprofit organizations, and retirement accounts.
- If you do not want to utilize your SSN for your business.
- If you prefer that your business financial year is the same as the calendar year closing, which is in December.
When is the right time to apply for a tax ID?
General partnerships and sole proprietors may not apply for a tax ID but they can choose to apply anytime. In the case of LLCs and corporations, tax ID application only happens after the formation of the document.
What is the information required to obtain it?
Should you apply, you have to provide the following information:
- Business address
- Your complete name, the manager as well as the principal officer.
- If it is an LLC, you should divulge the total number of members.
- The activities your business is involved in.
- The commencement date of the business.
- The accounting year your business follows.
- The estimated number of employees you plan to hire the next year.
- Your telephone as well as fax number so the IRS can contact you.
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