When you are starting a business, you may have many questions running through your mind. In particular, business owners are often confused about filing their taxes and the differences between an FEIN and EIN.
Essentially, a FEIN and an EIN are the same. FEIN stands for “federal employer identification number” and EIN stands for “employer identification number.” The terms are often used interchangeably to describe the number the Internal Revenue Service uses when filing your taxes.
What is an FEIN or EIN?
A FEIN or EIN is a special number you will use to help the IRS identify your business and track its taxes. This is similar to the way a Social Security number is used by individuals when paying their own taxes.
A FEIN or EIN is required for all corporations, partnerships, and businesses with employees. It is also required for businesses that have a Keogh plan or solo 401(k) retirement plan, or for businesses who are filing for bankruptcy.
If your business is an LLC with just one member or a sole proprietorship, then you are not required to have an EIN or FEIN when filing your taxes. These businesses are allowed to use their own Social Security numbers for business and taxation purposes.
Business owners will find that acquiring an EIN or FEIN is relatively easy. It is free and applying takes just minutes. Simply visit the IRS website to apply online. You will receive an EIN within an hour once your application is processed and approved.
This will be your business’ tax identification number as long as you do not change the structure of your business. It is important to know that changing your business name or adding a different business location will not change your EIN. However, choosing to change to a corporation or partnership would require you to acquire a new EIN.
What are the Benefits of an EIN or FEIN?
An EIN or FEIN is a unique number that can help protect your business from identity theft and other business issues. Businesses and corporations who acquire an EIN can enjoy numerous benefits, including:
- Avoiding tax penalties
- Preventing identity theft
- Adding credibility to freelancers or independent contractors
- Speeding up business loan applications
- Opening business bank accounts
- Building trust with vendors
- Establishing business credit
- Hiring employees with less difficulty
- Obtaining overseas entrepreneur options
While sole proprietors and LLCs with just one member are not required to obtain an EIN or FEIN, it is recommended. Freelancers, independent contractors, and other sole proprietors are often met with skepticism in the real world. Having an EIN or FEIN can give credibility to freelancers and help them stand out as businesses to trust. It also keeps your SSN private and lowers your chances of identity theft.
Contact Our Palo Alto Business Attorneys Today!
Whether you are a small business owner or part of a corporation, you need business attorneys on your side every step of the way. If you have questions or concerns about tax implications, or acquiring an EIN, we can help. To learn more, contact the Palo Alto business attorneys at Winghart Law Group, Inc. today at (650) 332-2994 or fill out our confidential contact form.