A sole proprietorship is a single ownership business structure which does not require registration. In this structural setup, you will have to pay personal income tax on profits that you earn from the business. As it is liable for minimum government regulations, it is very easy to set up.
According to the IRS rules, sole proprietors do have to apply for Federal Employee Identification number, instead, they use their social security number. But, if you ask the experts, they will say sole proprietors should also have an EIN, and there are reasons for it.
• To hire employees
• To apply for a Keogh or Solo 401 (k) retirement plan
• Buy or inherit existing business
• To incorporate as a partner or limited liability company
• For filing bankruptcy
• To open your business account
The Sole proprietorship companies which hire employees, and file federal tax returns in their respective taxes needs an EIN and would have to file taxes. And the sole proprietorship entrepreneurs who are running real estate business, or in the administration farming, cooperative or trusts and holding Keogh plans also have to pay taxes under the EIN.
A sole proprietor business also needs Employee Identification number for the following reasons:
• It protects the business from identity theft
• Ascertain your Independent Contractor status
Sole proprietors also have to secure their EIN during the bankruptcy proceedings and while changing to legal business structure to incorporate or partner.
How you can apply for an EIN?
There are restrictions on the number of EINs you can apply in a 24-hour period. Applicable from April 11, 2011, all the business structures can obtain five EINs in one business day.
As a sole proprietor, you can apply for an EIN at the IRS website. You can also download IRS Form SS-4 and submit it online or via post. Online process is an easiest and fastest way to apply for EIN.
However, there are other options also available. You can also apply for EIN Online. There are many business formation service providers who help businesses get their EIN online.
You can find them out through Google search, read their reviews and find out about their services. Many business formation services are BBB+ accredited and comply with State rules. They also help businesses in filling out the form, completing the application process, and then dispatching your EIN number at your provided address.