Owning a business is a dream of many people, but few truly understand that while you may look at your personal enterprise as an extension of yourself and your dreams, it is in reality a separate entity and requires its own tax classification. That's why the IRS will usually issue a business a free EIN number, also referred to as a Federal Tax Identification Number. Its sole purpose is to give a business entity it's own unique identity. Still, only businesses that meet certain criteria are required to have an EIN number so before you take up valuable time applying for one it pays to do some checking first.
When You Need an EIN Number
There are several different types of numbers issued by the IRS for businesses. Those businesses that expect to or already have employees, that are operating as a corporation or a partnership, that expect to file employment, excise, or Alcohol, Tobacco, and Firearms tax returns, plan to withhold taxes on income paid to a non-resident alien, or have a Keogh plan will need to get a free EIN number.
You will also need such a number if your business is involved in any way with trusts, individual retirement accounts, or any type of organization that is exempt from paying Business Income Tax Returns. Other organizations that fall in this category are those that work with estates, real estate mortgage investment conduits, non-profit organizations, farmers' cooperatives, or plan administrators.
If your business is not directly involved in any of these types of activities, then chances are that you won't need to apply for a free EIN number.
When a New EIN Number Is Needed
Just like with a social security number, you should expect your EIN number to remain the same for the life of your business. However, there are times when you may have to reapply and get a new number. This is only necessary if the ownership or structure of your business has gone through a major change. Basically, you can expect to have to reapply for a new number if you are a sole proprietorship that is subject to a bankruptcy proceeding, that is expecting to take on a new partner, planning to incorporate, or you inherit an existing business that you plan to operate as a sole proprietorship.
Corporations are expected to reapply if they receive a new charter from the Secretary of State, become a subsidiary of another corporations using a parent company's EIN, there is a change in status to a partnership or sole proprietorship, or there has been a merger of some kind.
You won't need a new number for basic changes in your business. For example, changing the name of a business does not change its structure so a new number won't be necessary. The IRS has many guidelines that determine if you need to get a new EIN number so it would be wise to visit their government website for more detailed information about when and how to apply for a new number.