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Starting a Business and Keeping Records

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Identification Numbers

NOTE: Generally sole proprietors without employees will use their Social Security Numbers; therefore, there if no need to obtain an Employer Identification Number (EIN).

You must have a taxpayer identification number so the IRS can process your returns. The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN).

  • An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000-00-0000.
  • An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00-0000000.

You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. This includes returns or documents filed to report the following information.

  1. Interest, dividends, royalties, etc., paid to you.
  2. Any amount paid to you as a dependent care provider.
  3. Certain other amounts paid to you that total $600 or more for the year.

If you do not furnish your identification number as required, you may be subject to penalties.

Employer Identification Number (EIN)

EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities.

If you don't already have an EIN, you need to get one if you:

  1. Have employees,
  2. Have a qualified retirement plan,
  3. Operate your business as a corporation or partnership, or
  4. File returns for:
    1. Employment taxes,
    2. Excise taxes, or
    3. Alcohol, tobacco, or firearms taxes.

How to get an EIN. You can get an EIN by mail, telephone, or fax. But first you must fill out Form SS-4, Application for Employer Identification Number. You can get Form SS-4 at SSA offices or by calling the IRS at 1-800-829-3676. It is also available from the IRS web site at www.irs.gov.

When to apply. You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. If you apply by mail, file Form SS-4 at least 4 to 5 weeks before you need an EIN. If you apply by telephone, you can get an EIN immediately. If you apply by fax, you can get an EIN within 4 business days. If you do not receive your EIN by the time a return is due, file your return anyway. Write "Applied for" and the date you applied for the number in the space for the EIN.

More than one EIN. You should have only one EIN. If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. The IRS will tell you which number to use.

More information. For more information about EINs, see Publication 1635, Understanding Your EIN.

Payee's Identification Number

In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). The forms used to report these payments must include the payee's identification number.

Employee. If you have employees, you must get an SSN from each of them. Record the name and SSN of each employee exactly as they are shown on the employee's social security card. If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. This may occur, for example, if the employee's name has changed due to marriage or divorce.

Other payee. If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. This form is available from IRS offices or by calling 1-800-829-3676. It is also available from the IRS web site at www.irs.gov.

Caution. If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. For information on backup withholding, see the Form W-9 instructions and the General Instructions for Forms 1099, 1098, 5498, and W-2G.

Tax laws are subject to change at any time. Please contact us for the latest information.

Please Note: This information is provided to you by Accounting and Tax Center, Inc., for use as general guidance, and is not rendering specific legal, tax, or accounting advice. Only a qualified tax professional with all the facts at his or her disposal can determine the appropriateness of the application of any law to a given set of facts.

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If you are in the Roanoke area and need a tax preparer or someone to represent you before the IRS, we can help.

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