If the prospective business owner is a sole proprietor, meaning that there are no other owners and no plans to hire any employees for the business, then the federal tax registration is rather straightforward. Sole proprietorships are filed by using the business owner’s social security number. A sole proprietorship means that the business is a one-person operation and that it is not registered with the state as a corporation, and it is not registered as a limited liability company.
However, if the prospective company is not a one-person operation and there are multiple owners of the company, or if there are plans to hire employees, then the EIN application form must be filed with the Internal Revenue Service. EIN, or Employer Identification Number, is a special identification number that the Internal Revenue Service assigns to every entity that pays taxes in the
Even though the most common method of dealing with tax forms for Sole Proprietorships is keeping the Social Security Number as the official Employer Identification Number, and even though the IRS has stated a preference for Social Security Numbers over EINs, a sole-proprietorship is permitted to have a tax identification number that differs from the social security number of the owner.
For the business owner who wants to separate their business and personal affairs, or who is concerned about identity theft, keeping their Employer Identification Number and the Social Security Number separate may be a good idea. Additionally, depending upon the kind of turnkey business purchased, it is helpful to have an Employer Identification Number for clients who need to report the EIN on invoices.
