A single-member LLC only needs an EIN if it has employees or excise tax liabilities. However, it may be a good idea to obtain an EIN for your LLC.
The EIN (Employer Identification Number) is used by the IRS (Internal Revenue Service) to help identify a business entity – you’ll also see this number called a federal tax ID. Most businesses require an EIN, but there are some exemptions to this rule if your LLC is a single-member entity.
What is an LLC?
An LLC, or “limited liability company”, is a business structure. LLCs are some of the most popular business entities – millions of entrepreneurs in the USA and abroad own LLCs. LLCs are excellent entities to form, particularly for small businesses that may otherwise be sole proprietors, as they cost very little and can be set up by individuals or multiple members.
LLCs have unique benefits, including inexpensive and easy formation, flexible pass-through taxation, and personal liability protection.
Depending on the elections made by the LLC and the number of members, the IRS will treat an LLC as a corporation (S-corporation status) partnership or as part of the owner’s tax return ”a disregarded entity”. A domestic LLC with two or more members is classed as a partnership (for federal income tax purposes) unless it uses form 8832, electing to be treated as a corporation. For tax purposes, an LLC with a single member is totally disregarded unless it files to be treated as a corporation. However, regarding employment and excise taxes, LLCs are still treated as separate entities.
There are key advantages to using an LLC business structure. Unlike a sole proprietorship, you and your business are a separate entity. Thanks to this separation, you have personal liability protection, meaning that (unless you’ve behaved negligently or fraudulently) if your LLC is sued or falls into debt, your personal assets aren’t at any risk.
In addition, LLCs are easier to set up than corporations and don’t have the same burdens. You don’t need to file annual reports and annual meetings aren’t usually required.
LLCs have unique taxation benefits; LLCs don’t have their own federal tax classification but can adopt the tax status of sole proprietorships, S-corporations, or partnerships. The IRS automatically classifies LLCs as partnerships or sole proprietorships (depending on the number of owners).
S-corporations enjoy some of the same perks, but they have limited ownership. For example, they can’t have foreign shareholders or more than 100 shareholders. There’s less flexibility with corporations, too. Corporations have a set management structure consisting of a board of directors overseeing company policies and officers who run the day-to-day operations; owners (known as shareholders) must be met every year to elect directors. LLCs don’t have this formal structure, and LLC owners have more choices about running their businesses.
Having an LLC without an EIN Number
Some LLCs require an EIN or Federal Tax Identification number – including multi-member LLCs, regardless of whether they’re taxed as an S-corporation or a partnership. However, the situation is different for a single-member LLC. Unless the single-member LLC has chosen to be taxed as a corporation, the IRS disregards the entity. A single-member LLC’s income is treated as the owner’s personal income for federal income tax purposes. A single-member LLC isn’t required to obtain an EIN unless it has:
- Excise tax liability
Additionally, if you’re making any changes resulting in your LLC not being classified as a disregarded entity, you’ll need to obtain an EIN. For example, if you add another member to the LLC and make it a multi-member LLC, you’ll need an EIN.
What is my LLC’s Tax ID Number?
Your LLC won’t use its own EIN for reporting, annual reports, or other filings for income tax purposes, as long as it’s a disregarded entity. If your entity is disregarded, your LLC must use your SSN (social security number) or EIN. This is the case even when you’ve obtained an EIN for your LLC. For certain excise tax or employment tax filings, the LLC’s own EIN may be required instead of the owner’s EIN or SSN.
Should I get an EIN for my LLC?
Even if you’re not required to have an EIN, you may benefit from having one. Most banks will ask for an LLC EIN before you can open a business bank account, and you can get an EIN even if the IRS doesn’t require you to have one.
How do I obtain an EIN for my LLC?
Applying for an EIN is free and fairly easy. There are several ways to apply, including:
- Online application: You could submit your EIN application online through the IRS website; this is the fastest way to obtain your EIN. It’ll be issued to you right away, making it highly efficient.
- Application by fax: Business owners can also apply via fax by sending Form SS4 to the appropriate fax number. According to the IRS, your EIN will be faxed to you within a few days once your information has been validated.
- Application by mail: You can use the slowest method of a mailed-in application; once a determination has been made, the IRS will send your new EIN.
You don’t always need an EIN for an LLC; if you have a single-member LLC you’ll be treated as a sole proprietor and file taxes as an individual.
Single-member LLCs are only required to obtain an EIN if it’s got one or more employees or are subjected to tax excise liabilities. However, there are some benefits to having an EIN for your LLC; whether you’re required to get one or not, it’s a smooth and free process to apply for your EIN. If you’re not sure about what you or your business needs, consider seeking professional legal advice.