“TAXING QUESTIONS”

Do I Need a (new) EIN?

We are frequently asked whether an EIN number is needed for a new LLC or corporation. For any who don’t know – or have forgotten – the acronym ‘EIN’ stands for “Employer Identification Number.” Sometimes it’s also referred to by the more generic term “Taxpayer Identification Number” or TIN.

There is IRS guidance on this topic, but reading it may make your head spin a bit! So let’s boil it down to a few points that are easy to understand.

Corporation. We’ll get the easy one out of the way first. A corporation (including an S Corp) always needs its own EIN, because among other things, you will always be filing a separate tax return (Form 1120 or 1120s) for the corporation.

Partnership/LLC. For a similar reason, a partnership also needs its own EIN, also because it files a separate tax return (Form 1065). This also goes for most LLCs with more than one member, as they will usually be taxed as partnerships.

Sole Proprietorship. When you’re just in business for yourself, with nothing more, you usually won’t need an EIN unless you will have one or more employees.

LLC. That leaves the limited liability company with only one member (owner), the single member LLC or SMLLC. This entity can be taxed in one of two ways. First, it can be a corporation (including S corp) for tax purposes, if the owner so elects; as such it needs an EIN, as mentioned above. Or, if the owner does not elect that, it is classified as a ‘disregarded entity,’ meaning that it is not considered a taxable entity separate from the owner’s tax status. As a disregarded entity, the SMLLC is treated like a sole proprietorship and generally needs no new EIN unless it will have employees.

The following handy chart summarizes the concepts and rules covered above:

A similar question comes up where a sole proprietor with an EIN incorporates or forms an LLC for the business: Is a new EIN needed here too? We’ll look at that question and how to obtain your EIN in the next installment.