Austin TX Business Law Blog

Monday, February 22, 2021

Does My Business Need a Separate Tax Identification Number?

There are many considerations when you make the big decision to set up a business. It may be difficult to even know where to begin. There are, however, certain logistics and formalities that will need to be observed in order for you to be able to successfully navigate these new waters and establish your business. Among the many questions you may have as you set up your business may be whether or not your business will need a separate tax identification number.

Does My Business Need a Separate Tax Identification Number?

A tax identification number is a nine-digit identification number that government authorities make use of in order to identify businesses and individuals. For individuals, a Social Security number acts as the tax identification number. For businesses, a tax identification number is usually an Employer Identification Number (EIN), or a TIN.

In most cases, your business will need a separate tax identification number. A business is very much like being its own individual. Just like people have their own Social Security numbers, a business needs a tax identification number (TIN), most of the time, in order to go about conducting business and to keep an owner’s personal finances separate from the business. Whether or not you really need a TIN will largely depend on how you have to register your business with the state and whether or not you have or will have employees.

A federal tax ID for your business will be needed to do things like pay federal taxes and hire employees. You will also need a TIN if you want to open a business bank account as well as apply for certain types of business licenses and permits. According to the Small Business Administration (SBA), you will need a federal tax ID for your business in order to accomplish any of the following:

  • Pay employees
  • File tax returns for employment, excise, or alcohol, tobacco, and firearms
  • Withhold taxes on income, other than wages, paid to a non-resident alien
  • Use a tax deferred pension plan, referred to as a Keogh Plan
  • Collaborate with certain kinds of organizations

You will also need to have a separate TIN for your business if you want to establish a corporation or a partnership. Additionally, certain customers or suppliers you want to work with will ask you to provide your TIN in order to set up an account with them.

There are, however, certain instances where you may not need a TIN for your business. This is mainly true for those who will establish a sole proprietorship. With a sole proprietorship, the owner’s Social Security number will usually suffice for most business purposes. If the sole proprietorship wants to hire employees, however, it will need its own TIN.

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For more answers to your business formation questions, The Kumar Law Firm is here for you. Contact us today.

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