Employer Identification Number

Okay. What is the employee identification number
and why is it important. Well if you were going to carry on business
and employ other individuals, okay? That they are going to receive a salary in
the business and they’re not going to be compensated as co-owners. Well in that case you have to report certain
tax withholdings such as Federal and state income tax and payroll taxes to the state
and Federal government. Well the Federal government has a Federal
employer identification number and states generally have a state employer identification
number that allow you to report and transmit these taxes to the IRS and to the state department
of revenue and carry on the business. Okay. So generally at the time of forming a business
entity if you form a formal business entity you can make the election to go ahead and
through the same process receive a Federal or state EIN or put in the application for
a state or Federal EIN. If you carry on as entity does not follow
the state such as a self-proprietorship or general partnership then you simply have to
call up the IRS or the state department of revenue or in some states they have a process
on their website. But in either way you contact these entities
and request an employer identification number. So that you can adequately report the tax
obligations, the payroll taxes and income taxes for your employees, okay? Now if you do not have any employees and you
carry on business say as a sole proprietor your still going to need to report your taxes. Now in that case you can simply use your social
security number. So the employer identification number comes
in as the name implies once you have employees, okay? But until that time it is possible to simply
file whatever tax obligations, self employment taxes, income tax, withholdings, et cetera,
estimated taxes for the business activity under your Social Security Number. Now if you have plans to grow and have employees
it is far easier for accounting and book keeping process to simply go ahead and get an EIN
with the state and Federal government so you can keep up with your tax reporting obligations
without having to make any changes in the future. And as a second point as we’ll talk about
in a later video it helps to go ahead and establish business credit or credit history
for your business. http://TheBusinessProfessor.com


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