In 2020, the number of small businesses in the US rose to 33.2 Million while the number of employees fell by a staggering 3.7%. This shows that more people are switching from full-time roles to independent contractors/sole proprietors. Starting as a sole proprietor is one of the best ways to start your own business. You can start at a really small scale with minimal financial burdens and scale your business as you grow. You can start as a freelance designer, writer, photographer, tutor, or anything that you’re good at, and you can monetize. A sole proprietorship brings along many benefits, such as freedom in work, a chance to pursue your passion, and also drive revenue out of it.
Sole proprietorships are one of the most uncomplicated business setups as you don’t need to officially register your business, set up an office, and hire employees immediately. However, as your business grows, you might need more hands to join your force, and that’s where sole proprietorship EIN comes in. EIN (employer identification number) is the number the IRS assigns to your business. It is used to identify your business as a taxpayer and an employer.
As per the IRS, all profit-making businesses must obtain an EIN and document their taxes. However, this is an exception for sole proprietors. The IRS does not mandate sole proprietors to be registered with an EIN. Business owners can report their taxes by considering the revenue from their business as personal income. They can use their social security number for other business-related activities.
However, this only stands true for certain conditions. As per the IRS, you don’t need a sole proprietorship EIN if you don’t have any employees and/or don’t file tax returns. If either of these conditions stands true, you must register for an Employer Identification Number.
As your business grows, you need to organize your personal and business finances according to your goals. For this, you may need to set up a retirement fund and a pension plan. Contributions for these are usually deductible from taxes and can end up helping you save a lot of money. To be able to reap the benefits from these contributions, you will need to register for an EIN.
Apart from this, you will need to register for an EIN as soon as you think about hiring employees. Every growing business needs employees, and you may need to build a team sooner than you think. Hiring employees without having an EIN is illegal and will cause a lot of trouble. Moreover, you will also need to make social security contributions for your employees, and an EIN is an absolute essential for this.
Another instance when you will need a sole proprietorship EIN is when you plan on buying another business. An EIN is also necessary in cases where you switch your personal business to a limited liability company or a corporation.
Obtaining an EIN is essential for some sole proprietorships; however, there are benefits of getting an EIN for sole proprietors who don’t need them.
All sole proprietors can register for an EIN at any given time, irrespective of whether they need it or not. Here are some benefits of EIN for sole proprietors who may not necessarily need it:
Now that you’re acquainted with the benefits of getting an EIN for your sole proprietorship, you must understand how to get one.
Obtaining an EIN today is very straightforward, and you don’t need to pay any fees. There are three ways you can get your sole proprietorship EIN:
Now that you’re getting an EIN for your sole proprietorship, you will soon start hiring employees. In today’s world, where remote work is so prevalent, you shouldn’t restrict your team to your own country. Multiplier can help you onboard employees in more than 150 countries and leverage global talent.
As an EOR service, Multiplier will help you onboard, manage, pay, and offboard your international employees. Our user-friendly dashboard presents all the crucial information in a simplified manner and ensures visibility.
Here’s what Multiplier can help you with
Book a demo, and go global now!