Every LLC, corporation, and partnership must have an Employer Identification Number (EIN), which is also known as an FEIN (Federal Employer Identification Number), in order to file taxes. Plus, many banks, credit card companies, and vendors insist upon having your EIN, so this should be one of your first steps after forming your business. To get your Employer Identification Number (EIN), you need to apply with the Internal Revenue Service (IRS) online, by fax, or by mail.
This article discusses how to get an EIN—including whether your business needs one or more than one.
Regardless of how you operate your business (sole proprietorship, LLC, S Corp, or C Corp), when you file your annual income tax forms, you must provide the name of your business (if it's different from your own name), your principal business or profession, and your principal business code.
In most cases, you must also supply your federal employer identification number (EIN). Although many sole proprietors can use their social security number for federal tax purposes, they must get an EIN if the business has one or more employees (including the owner); has a Keogh plan; withholds taxes on income (other than wages) paid to a non-resident alien; or has to file an excise tax form (such as alcohol, tobacco, firearms or highway use).
If you operate more than one business as a sole proprietor, you should (in most cases) use the same EIN (FEIN) number for all of your businesses.
In contrast to sole proprietorships, each partnership, LLC, and corporation must always have its own EIN. If you operate more than one LLC or corporation, each business entity must have its own EIN.
You apply for an EIN with the Internal Revenue Service (IRS). Businesses located in the United States can apply for an EIN for your business in one of three ways:
The IRS recommends that foreign businesses apply over the phone, but they also provide the option to file via fax or through the mail.
Regardless of which method you use, the IRS will issue only one EIN per day per responsible party.
Regardless of your business form (e.g., sole proprietorship, partnership, LLC, C corporation, or S corporation), you must correctly identify the type of business that you are running. To do this, you enter a six-digit business code at the top of your annual income tax form you file for your business.
Why is it so important to use the correct business code? The IRS educates its agents about typical operating procedures in different industries and in specific types of businesses, in order to equip the agents to identify businesses under-reporting income and overstating deductions. The IRS may screen your tax return to determine whether your income and expenses are unusual for that type of business indicated by your business code.
If you use the wrong business code, the IRS may notice the incorrect standard. If so, they may decide to dig further into your return (and ask you to produce more records to prove your figures).. You can find the correct business code by consulting the complete list of codes that is included in the IRS instructions to the tax form you are required to file:
What if it seems that your business doesn't fit into any one business code? If this is the case, you should first consider whether you actually operate two (or more) different businesses. If so, you'll want to report the income and expenses from each business separately.
However, if you believe that you are operating only one business, then you should use the code that accounts for the highest percentage of the total receipts of your business. The IRS does provide a code, 999999, for business owners filing a Schedule C or Schedule C-EZ that are unable to classify their operations, but we suggest that you use this only as a last resort.
It's not uncommon for a successful business owner to expand the initial business into additional, related activities. In addition, many business owners may operate completely separate businesses.
If you operate more than one distinct business, it is essential that you use the proper business code for each business. Also, if you have two or more separate business activities, you usually can't report them both on the same Schedule C.
In general, if you provide similar products or services to similar clients, you have a single business. If the products or services are different or if the client base is different, you may have more than one business depending on how close the relationship is between the activities.
In certain cases, you must file a Schedule C, or an additional Schedule C, because of the type of compensation that you received from a company. So, if you receive income as a “statutory employee,” a grouping that includes full-time life insurance agents, agent or commission drivers and traveling salespersons, and certain homeworkers, you must report this income on a Schedule C. If you also receive other income as a self-employed person, don't combine the two types of income. You must file a separate Schedule C for each type.
Lastly, keep in mind that the tax law provides for separate treatment of “passive activities.” Income or losses from a passive activity can only be offset by income or losses from other passive activities. Real estate rentals are most often classified as passive activities, which must be reported on Schedule E, Supplemental Income and Loss, not Schedule C.
So, if your business involves some rental or leasing activities, you may need to treat the income and expense from these activities as separate passive activities.
