One of the most challenging aspects of running a business is preparing for tax season. For most new business owners, this begins by applying for a federal employer identification number (FEIN). Let's look at how a FEIN works and how you can apply for one.
[Read more: 5 Types of Organizational Structures for Small Business]
What is a FEIN?
A FEIN is a nine-digit number that identifies your business for tax purposes, and it's kind of like a Social Security number for your business. You can apply with the IRS, and the application process is fairly simple to complete.
There are numerous benefits of having a FEIN, even if your business type doesn't require one. A FEIN is necessary if you want to open a business bank account, apply for a small business loan, or take out a credit card for your business. You'll also need a FEIN if you want to bid on government contracts or hire employees.
Moreover, a FEIN protects your identity since you won't have to use your Social Security number on tax documents. However, it's important to keep your FEIN secure — scammers can steal it and use your business information fraudulently.
[Read more: How to Choose a Legal Entity for Your Startup]
Getting your FEIN may seem like a mundane task, but it's a very straightforward process.
How much does a FEIN cost?
The IRS does not charge a fee to obtain a FEIN. However, there are companies that charge you money to apply for a FEIN on your behalf. Getting your FEIN may seem like a mundane task, but it's a very straightforward process. It's probably not worth the cost to pay a service provider to do it for you.
How long does it take to get a FEIN?
If you apply online, you receive your FEIN that same day. The application process takes about 15 minutes to complete, and your information is validated instantly. Once you've finished the online application, your FEIN is issued immediately.
If you apply by mail, it can take up to four weeks to process your application. Make sure you fill out the form correctly to avoid any processing delays. The IRS also allows you to apply over the phone or by fax.
[Read more: How to Incorporate a Sole Proprietorship]
4 steps to apply for a FEIN
If you're ready to get started, here are four steps you'll take to apply for a FEIN.
1. Determine your eligibility.
According to the IRS, you need to apply for a FEIN if any of the following conditions apply to your business:
- You have employees.
- Your business is a corporation or partnership.
- You file employment; excise; or alcohol, tobacco, and firearms tax returns.
- You withhold taxes on income paid to a nonresident alien.
- You have a Keogh (tax-deferred pension) plan.
- You're involved with certain trusts, estates, real estate investments, nonprofits, farmers' cooperatives, or plan administrators.
2. Begin the application.
The IRS gives you numerous ways to apply for a FEIN, but the easiest route is to apply online. When you apply, you'll need to provide your Social Security number so the IRS can validate your information.
3. Provide your personal and business info.
Next, you'll provide your personal information, like your name and mailing address. You'll also indicate your business structure. For example, you can select a sole proprietorship, partnership, limited liability company, or corporation. You'll also provide some basic details about your business, like your business name, the state you operate in, and your reason for applying for a FEIN.
4. Submit the application.
Once you've finished filling out the form with the correct information, you'll submit your application and receive your FEIN. Once you have a FEIN, it doesn't expire as long as you use it on a federal tax return at least once every three years. Otherwise, there are no further steps you need to take to maintain your FEIN.
This article was originally written by Sean Peek.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.
