When you file for federal taxes with the tax identification number, then your social security number doubles. Many people who pay taxes through the social security number pulls double duty with the IRS for that is a necessity. The tax identification number has various benefits. It is essential for an entrepreneur to take the EIN. The process of getting this number is not complicated, but when it becomes a challenge to you, you have an option of using a third party. The third party will make the process easier and fast for you. Below let us view at some of the benefits one will experience from getting a tax ID number.
Tax facilitation is one advantage of the tax identification number. Sole proprietors are allowed to operate their businesses without an EIN. They are allowed to use their social security numbers. However, this changes when they employ their first employees. When they get to employ someone, then it becomes mandatory for them to get the tax ID number. Every employer who collects payroll taxes is required by the IRS to use the EIN in the process and not the social security number. Workers from foreign countries are not eligible for the social security benefits. This way they are required to get an ITIN that will file their individual taxes. EIN numbers are a requirement of the state, and every other person must abide unto them.
The other advantage of getting the number is the easiness to get credit and banking. This is a great advantage for any entrepreneur who wants to start their companies banking history that is away from their finances. This is because there may come a time that you want to sell the company and you want to separate the company’s liability from your own. This way you will be required to have a tax ID number. With an EIN it will also be easier for you to get credit from financial institutions. The credit given to the company will be in the company’s credit history and not yours as a person. In the case of anything the blame goes to the company and not you.
The other thing is the Keogh plans. You may not be having any employee in your business, but tax ID numbers open doors for retirement plans. Most of these plans are not available to the people who use their social security funds. These pans may also be used when structuring pension that is self-funded and it is the same as the benefit plans that are defined and mostly used by traditional employees.
EIN also gives security to your identity. If you are working as an independent contractor, there is a likelihood that you are dealing with many different clients. This may make one uneasy to give them your social security number. A tax ID number may be used to protect your personal identity, taxes, credit history and bank accounts from getting into the hands of criminals. With this number, you will not have to expose your personal information to people.