Do I need to get an EIN (Employer ID Number) when I’m the only member of LLC?
One of the most important reasons that a business owner decides to establish LLC (Limited Liability Company) with only one member in the business is that they want to protect their personal assets from any loss that the business may cause.
Limited Liability Company is relatively easy to set up, but the tax payment is not as clear because there is no separate tax classification for LLC. The business owner of LLC should decide which tax classification they are going to file on: sole proprietorship, partnership, or corporation.
A single-member Limited Liability Company is classified as a “Disregarded Entity” by default, and treated as a sole proprietorship for income tax report.
One may file their business income on their personal tax return, Form 1040 using their Social Security Number (SSN) when they are the only member of their business. So why do we want to obtain EIN in this case?
Let’s say that I, a business owner whose LLC has only one member, myself, want to open a bank account for the business. They ask me if I want to use my SSN for my LLC business account. Well, the reason that I set up LLC was that I didn’t want to mix my personal assets with my business. So do I want to use my social security number to open a business account? Shouldn’t I make my business as a separate entity as possible to gain better protection against personal liability?
According to some reports, in certain circumstances, some courts may decide that an LLC didn’t practically exist and its owner ran the business as an individual rather than as an LLC when he or she has paid tax on their personal tax return.
Here is the summary of the benefits of using EIN over SSN for an single-member LLC.
For the above reasons, it’s advised that a business owner may acquire EIN from the IRS even for one-member LLC.
Acquiring EIN is very simple and takes less than 10 minutes.
Get an EIN for your single member LLC.
This post is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
By Russell, May 2, 2009 @ 11:38 am
I just received answers to some old business questions from your website. I understand the significant points of having an EIN now.
So if I’m receiving money from sources online that are going to 1099 me at the end of the year, is it better to give them my SSN or my LLC’s EIN. I’m a SMLLC so it’s only me that has to worry about paying any taxes as an employee.
By Misty Tolman, July 23, 2009 @ 10:47 pm
I was wondering…If I have a EIN under a sole proprietor and want to start another business and make my second business a LLC business do I need to apply for a second EIN?
By admin, October 12, 2009 @ 5:11 pm
You may need only one EIN, but I’d consult a CPA or tax advisor.
Hope this IRS publication helps:
>>You do not need a new EIN if any of the following are true:
>>• You change the name of your business
>>• You change your location or add locations (stores, plants, enterprises or branches
of the entity)
>>• You operate multiple businesses (including stores, plants, enterprises or branches
of the entity)