Anyone starting a Minnesota small business in Minnesota is likely worried about following the rules when it comes time to pay taxes.
Though you may have run across the phrase “Employer Identification Number (or EIN), it might not be clear in which circumstances you need to apply for an EIN and which you don’t. To find out more about applying for tax identification numbers, keep reading.
Minnesota Business Law | What is an EIN?
An EIN, also known as a Taxpayer Identification Number, is a nine-digit number that is assigned to businesses by the IRS for tax purposes. The format for an EIN is two digits followed by seven digits: 12-3456789. A good way to think of an EIN is like a Social Security Number for businesses. The number serves as a unique identifier for your company and is used when filing taxes, requesting business permits and even when opening certain bank accounts.
Minnesota Business Law | When do you need an EIN?
Right off the bat it is important to understand that any and all corporations (C corporations and S corporations) and partnerships are required to have EINs. Sole proprietorships that have one or more employees, use Keogh retirement plans or manage pensions will also need to get an EIN. Finally, EINs are required for certain trusts, estates and non-profit organizations.
Minnesota Business Law | When do you not need an EIN?
The only people who don’t need to worry about applying for an EIN are those operating sole proprietorships or LLCs without employees. Though LLCs can get away without having an EIN, if you intend to hire employees or take on multiple members you will need to get an EIN within a year. If you are your firm’s only employee or if you use independent contractors, then you are not required to file for an EIN. However, even if you aren’t required to have an EIN, you can still choose to use one.
In some cases, EINs are useful even for sole proprietors because it reduces the instances where you will need to use your own Social Security Number for business purposes, minimizing the risk that personal information will be floating around. Also, some banks require an EIN before they allow you to set up business bank accounts.
Minnesota Business Law | How to apply
Luckily applying for an EIN is relatively simple. The IRS handles the process for free and allows you to submit the required paperwork, IRS Form SS-4, either by mail, phone, fax or online. The form can be found on the IRS’s website (IRS.gov) or can be requested by mail. Once the form has been submitted, the IRS will respond with a paperwork containing your EIN, which you can then use going forward.
It’s good to know that with the right help, establishing a Minnesota small business does not have to be a scary proposition. An experienced Minnesota small business attorney can help walk you through the process of setting up your new company and ensure it offers the maximum benefits for your individual situation.
For more information, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398. The firm offers Minnesota S. Corporation formation and Minnesota LLC formation.
Source: “Do You Need an EIN?,” published at IRS.gov.
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