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WHAT IS A TAX I.D. NUMBER? DO I NEED ONE?
One matter that every for-profit business owner has to attend to is the process of submitting tax forms and paying taxes. Like any transaction that requires an account number, the business owner needs some type of tax identification number. Learn more about the various reasons why you may have to consider getting a new tax identification number for your business.
The government requires you to identify your business with one of two numbers: either your Social Security number or an EIN (employee identification number). If you are running a home-based business by yourself and don't have any employees, your Social Security number can be used on all your government forms and other official documents. However, you can still apply for an EIN and use that number instead.
A tax I.D number is an identifying number that allows a tax authority to apply payments and accept returns correctly. Each tax-paying citizen in the country has a tax identification number, better known as a Social Security Number. But when you run a business, you may have to separate your personal tax information from that of the business.
You have several types of tax identification numbers to look into as a new business owner. For one, the federal government issues Employer Identification Numbers through the Internal Revenue Service. Individual states issue tax identification numbers so that business owners can submit state income tax. Some states and localities also require new business owners to get a sales tax ID number so that they can collect sales tax from customers--most common in the case of a company that sells tangible goods. In many cases, when someone asks for your business tax ID they are referring to your EIN.
If you decide to structure your business as a partnership or corporation you need a federal tax identification number to represent your business. Sole proprietors can choose to use a Social Security Number when filing, but when you run one of these other types of businesses it involves other people or a separate entity.
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