When choosing how you are going to operate your new business, you may decide that an LLC formation is the best structure to have. There is a lot of flexibility within an LLC, which can be beneficial for both you and any business partners you may have. However, what’s important to remember is that this entity type is not federally recognized. This means it varies from state to state. As such, you may have to apply for EIN online to get it registered with the federal government. Let’s take a look.
How Does an LLC Work?
A limited liability company is designed to allow business owners to run their company in a few different ways:
First, you can be an individual and form an LLC. In some states, you have to have at least two partners, but that’s not always necessary.
Second, an LLC has pass-through tax benefits, which means that your business earnings and wages are not taxed separately. The money you make is only taxed once, not twice.
Finally, since it has limited liability, partners in an LLC are not responsible for business debts or financial burdens. This is one of the better benefits of having this entity type.
Overall, you can run the business on a more personal level while still keeping your liability to a minimum.
What is an EIN?
An employer ID number is used to create a separate tax entity for business purposes. While you can start your LLC with your social security number, an EIN may be necessary for the following reasons:
- You have employees
- You have more than one partner
- You wish to be taxed as a corporation or partnership (meaning you don’t want to use your SSN for business expenses)
To get an EIN, you can use a third-party organization to help you fill out the paperwork and get the number from the IRS. Fortunately, you can usually get the number in a day or so and start using it right away. An EIN is also helpful if you want to open a business bank account since most financial institutions won’t accept an SSN.
Bottom Line
An EIN is not always necessary for an LLC, but it’s recommended.
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