What is an EIN and why would I need one?

Ralph/Outro
00:00:00

Have you ever felt like you're missing out on business opportunities because you don't have the right paperwork? Maybe you've heard about an EIN number, but you aren't sure if you need one or even how to get it. Well, today, I'm going to clear up some of the confusion and show you exactly why this simple number could be the key to unlocking your business's full potential.

Narrator
00:00:21

Welcome to the Ask Ralph podcast where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now, here's your host, Ralph Estep Jr.

Ralph/Outro
00:00:48

Well, thank you for joining me today on this journey of financial freedom. The whole goal was to do that while balancing our faith. If you missed yesterday's show, I talked about why looking poor can actually be the key to being rich. I offered some counterintuitive wisdom and how appearing wealthy often leads to poor financial decisions, while those who live modestly often build true wealth. So if you missed it, I'm going to encourage you to go and check it out.

Today's question comes from Mike when he writes this: “Dear Ralph, I'm starting a small side business selling handmade furniture. But I'm confused about whether I need an EIN. I keep hearing different things from different people. Some say I absolutely need one, others say I don't, since I'm just starting out. Can you help clear this up? What exactly is an EIN, and do I really need one as a sole proprietor?”

Well, Michael, that's a great question. It's a question I get probably two or three times a week, so my goal today is to clear up the confusion. Now, if you've got a question like Michael, one of the ways that you can interact with the show is to join me each Tuesday night. I go live on the Ask Ralph Show Live at 7:00 PM.

Eastern Standard Time. And listen to this: here's a great idea why you might want to join us every week for the live show. I'm giving away a hundred-dollar Amazon gift card to somebody that's in the audience. One lucky listener is going to win an Amazon card each and every Tuesday night. Now, you get to the Ask Ralph Live Show by going to askralphpodcast.com/live. It's a great place to get your questions answered. You can join our community again. Check it out at askralphpodcast.com/live, and maybe you'll walk away next week with that hundred-dollar Amazon gift card.

Now, Michael, your question reminds me of a powerful verse that speaks to the importance of proper planning and organization. So let's get right into our Bibles today. It comes to us from the book of Proverbs 24:27. It says, "Prepare your work outside; get everything ready for yourself in the field, and after that build your house." See, it's all about preparing. It's all about creating that strong and secure foundation. So that's what we're going to talk about today. We're going to talk about that EIN number as being that strong and secure foundation.

Well, let's start by addressing the first question: What exactly is an EIN number? Well, EIN is just simply short for Employer Identification Number. You got to think about it. It's sort of like the Social Security number for your business. It's a unique nine-digit number assigned by the IRS. I'll share some more specifics in a few moments about how you get one of those, but I wanted to start off just by talking about what exactly an EIN number is because I thought that was important to understand before we get started. So, let me tell you about my client, Sarah, because it really does illustrate the importance of getting that EIN.

Now, Sarah is a small business owner just like you, Michael. She was doing it as a sole proprietor. Now, Sarah made some beautiful handmade jewelry. I'm talking about this stuff was beautiful. She was selling it online. She was using her Social Security number for all her business dealings, and then one day came her big break.

She received an exciting opportunity. A major retailer had reached out to her and said, "We'd love to sell your handmade jewelry in our stores." And this was a huge opportunity. She told me, she said, "Ralph, my jewelry will be available all over the country in these retail shops." But that's where it got a little complicated. Because as soon as she got that offer, the retailer sent her a packet of information to fill out, and one of the pieces of that puzzle was that they required a business tax ID number.

They wanted her EIN number. She had been used to working with just that Social Security number, and the truth is she nearly missed this opportunity, but fortunately she called me. We sat down, we did some brainstorming. We talked about what this was, why she needed it, and in the end, we ended up moving her away from being a sole proprietor.

I've talked on many shows about why you might want to consider setting up a separate entity like an LLC or a corporation or an S-corporation, but in her case, we decided that an entity would be best. We got her that EIN number, and guess what? Now she's selling her jewelry in several retail locations.

I mean, she is all over the place. And you might be thinking, Ralph, I'm not that big. I've got a small business. Do I really need to get this complicated? I'm going to give you the simple answer, and the simple answer is absolutely. You know, while having an EIN is not legally required for a sole proprietor. You don't have to do that. In my view, having an EIN does provide several benefits.

So let's talk about what those are. Number one: Most banks are going to require an EIN number for you to open up a business bank account. Now, you can open up a personal bank account. Maybe it has your name and then the second line is the business name, but that's not a business account. If you really want to open up a true business account, most banks, in fact, I would probably venture to say all banks are going to require you to provide that EIN number. So you've got to have it for that. Step number two: The other benefit of this is it enables you to hire employees. It's generally a must for payroll processing. Now, that said, I have heard of some people—I've got a couple of clients now that just don't want to go down the entity road.

They don't want to get that EIN number, and they're using their Social Security number for payroll. I just think that's a bad plan because think about it like this: When you send out your W-2s to your employees, you're going to put your Social Security number on every one of those W-2 forms. I just don't think it's a very good idea from an identity theft perspective.

So if you're going to be hiring employees, I think an EIN is a must. Well, let's look at benefit number three: EINs are needed for filing business tax returns. Think about it. If you're filing a business tax return, it's a separate legal entity. You can't use your Social Security number. So if you've got an entity, it's going to be automatic that you're going to get an EIN number, which is also a good thing because now we're separating. If you listen to my show, you know I talk about this all the time. We've got to get to a point where we separate the business and the personal, and if you're using your Social Security number, you're clearly not separating those two things.

So let's look at benefit number four, and I kind of alluded to this already. Having an EIN number protects your personal Social Security number from identity theft. Like I said, this one is huge. You don't want to be sending out those W-2 forms with your Social Security number. You don't want to be interacting with other businesses when they ask you for your tax ID number.

So they can send you a 1099 at the end of the year or doing any kind of online banking or setting up, you know, Shopify or one of those online marketing sites. You really don't want to use your personal Social Security number; it just opens you up for a ton of potential identity theft. So I'm going to say that one's huge.

And number five, last on my list today of benefits: they're required for certain business licenses and permits. And this is one of the areas where you got to check with your local government, check with your state government. But a lot of times, these local and state governments, if you want to get a business license in their jurisdiction, they're going to require that you have an EIN number because they don't want to use that Social Security number.

They want to see that you've got a tried-and-true business EIN number. Now, let me say, I haven't really talked about this. Here's the thing you need to understand: You can get an EIN number without setting up a separate entity. You can do that, but the truth is most businesses need that EIN number. Like I said, except for if you're going to do a sole proprietorship with no employees. If you want to do that, that's fine.

You can just use your Social Security number. Again, if you've listened to what I'm saying to you today, I think that's a mistake, but you can do it. Now, let's say you don't want to set up that separate entity. You say, Ralph, sole proprietorship is good for me. You can still apply for an EIN number. So let's talk about that. Getting an EIN number is absolutely free.

Go to www.irs.gov. And I'm going to share some specifics about applying for that EIN later in the show. But first, I'd like to ask you to do me a favor today. One of the ways that we can grow the show is to share the show and to give me some ratings and reviews. So I'm going to ask you a real simple question.

If you're getting value from this show, I would really appreciate you leaving a rating and review. The truth is most people often select shows based on ratings and reviews. I don't think that's the deal maker, but it certainly helps. They want to see that the show is providing value. They want to see that there's other people looking at this show, they want to read those reviews and see what people are getting from the show.

So again, if you're a loyal listener, maybe this is the first time you tuned in, and you're like, Ralph, man, you're giving us some really useful information. I never ask for money. I don't ask for any of those things. I would just really appreciate it if you would leave us a review. Now, the easiest way to do that is if you go to askralphpodcast.com/review. Again, that's askralphpodcast.com/review.

And I'm just going to encourage you to leave us an honest review and rating. Maybe you could share something you learned from this show. The whole goal of this is to help us reach more people with our positive message of balance and faith and finance. So, if you've been impacted by the show in a positive way, you want to share something you've learned from the show.

I would truly appreciate you doing that. Again, it's at askralphpodcast.com/review. Now, I promised I'd share some action steps with you. Because the truth is, if you listen to me, you know I say this all the time: intentions are great, but actions are the answer. So let's get right into this. So here are some specific steps you can take.

Number one: Determine if you need an EIN number. Like I said, if you plan to hire employees or operate as a corporation or partnership or other LLC entity, you absolutely have to have an EIN number. Number two: Visit irs.gov and apply online. It's free. It's not complicated. It's a fill-in-the-blank thing.

Make sure you answer the questions correctly. If you need help with that, you can schedule a call with me. The next thing I'm going to tell you to do, number three, is keep your EIN confirmation letter in a safe place. So when you apply for that EIN, if you do it online—and I'll talk about specifics of how we do that in a few minutes—but if you do it online, they're actually going to issue an EIN confirmation letter to you that you can download, and you want to keep track of this. As we talked about, you might need it for a payroll company.

You might need it for a bank. You want to have that letter available so that you, number one, know your EIN number because if you come to somebody like me to get your taxes done at the end of the year, or you're doing some consulting work with somebody like me or something like that, you're going to need that EIN letter so that you know what your EIN number is. And then this is one of the kind of dumb things.

But once you get that EIN number, start using that instead of your Social Security number for all business matters. Look at everything in your business and say, What is the tax ID number that they have? Are they using my Social Security? And maybe you've been in business for a while, and you said, Ralph, I never really got around to getting an EIN number.

So everybody's got my Social Security number. Well, this is a time to make that modification. Go on to those online selling sites, you know, fill in the EIN. They may ask you to upload your EIN letter. But start moving away from using that Social Security number for business matters. It's all about keeping things separate. And like I said, number five, and this is kind of a no-brainer as well.

You've got to update your business documents with your new EIN. So you might be asking, Ralph, okay, you've sold me. It's time to get an EIN number. Can you tell me exactly how to do it? I'm going to tell you it's simpler than you might think. So there's a couple of ways to do it. First thing is what I'll call the fastest method.

That's the online application. All you got to do is go to irs.gov. And if you search for "apply for an EIN," there'll be a little button that says "apply online now." And it's really quite that simple. You can complete the application. Now, they do have some time things, and I'm not sure exactly why they do this. I guess because maybe there's some live staff that's watching these, so you can generally apply between 7:00 AM and 10:00 PM each day.

That's Eastern Standard Time, Monday through Friday. If you go to do it on the weekends, apparently now they've closed that down on the weekends. Maybe they do maintenance or something like that, but, and then once you do that, if you fill in all the blanks correctly, you don't have an error, they're going to provide your EIN number to you right away.

You're going to get a screen that says, "We've assigned your EIN number. Here it is." They're going to give you a document that you can download. It's usually a PDF document. I encourage you, like I said, to hold onto that, but it's really that simple. Now, another way you could do it is by mail or fax.

Maybe you're one of these people that's like, you know what? Nah, that's not for me, Ralph. Well, you can go and download and complete what's called a Form SS-4. Now, you can get that SS-4 form by visiting irs.gov and downloading the form. My opinion is if you're there already, just go ahead and apply online.

I don't really see the benefit to that. But let's say you want to have that paper thing. Go find that Form SS-4, just make sure if you go to search the internet for it, go to the IRS site, not to some ancillary site that might kind of trick you into putting your information on there. So once you fill it out, you can mail it to the Internal Revenue Service. That goes to the Internal Revenue Service, Operations, Attention EIN Operation, that goes to Cincinnati, Ohio 45999.

Another way you can do it is you can fax it to them. It's a better method than mailing it because mailing it, you might be waiting six to 12 weeks for that thing. Most of the time, you want this EIN number right away. So you could also fax in that request. The fax number is 855-641-6935. Now, let me give you a few important tips. Here's the things you need to know because they're not always intuitive. If you take the online application approach, it's got to be completed in one session.

Once you've started moving forward, they're not going to let you come back to it. So you got to work through all the questions. So what you might want to do is go online and start that. If you find that they're asking a question you don't know about, go back and start over again. Before you do that, you've got to have all your business information ready before you get started.

They're going to ask you for the name of the business. They're going to ask you for the address of the business. They're going to ask you what type of entity it is, whether it's a sole proprietor, an LLC partnership, an LLC corporation, or a corporation or an S corporation. They're going to ask you for what they call the tax party.

You're going to have to put in your name, your social security number because they're going to confirm that that information matches what's on their database. They're going to ask you what type of business entity you are, what kind of business you're in. They want to collect all that information at the front end.

So, once you get past that, like I said, you're going to get that EIN confirmation letter. If you do it online, you're going to get it immediately. If you do it by mail or fax, they'll either mail it back to you or, if you request it, they'll fax it back to you. They'll actually fax that back to you. So, that's one of the things you'll... once you get that letter, hold onto it. And listen, you can only apply for an EIN once per day per business. I'm not really sure that's a big issue.

I guess there was some fraud going on out there, so they kind of locked this down. You can only get one per day. So, if you've got multiple businesses and you're like, "Ralph, I want to go get multiple EINs," they're only going to let you do one a day. So, they're tracing back to your personal name and your personal social security number. I guess they're doing that for verification purposes.

So, if you've got a couple of businesses, it's no big deal. Take Monday and apply for business one, take Tuesday and apply for business two, and if you've got business three, do it on Wednesday. And remember, don't let anybody charge you for doing this. This service is completely free. Don't ever pay anyone to get an EIN.

Now, that said, I want to be careful what I'm saying here. It may make sense for you to sit down and have a consultation with somebody like me. You know, we set up entities, we set up corporations, we set up LLCs. And in that regard, I do charge for getting an EIN number, but it's part of a package of setting up your business.

I'm not charging you directly for doing that EIN. So, let's just say you listen to our show today, you go see Ralph, "I'm sold, I'm going to go get an EIN number," and you go online. You forget about going to irs.gov because it's really that simple, and you find some other sites that want to charge you for that.

Don't do that. Either contact me, book a call with me, and we'll talk about your particular situation. I'll help you get that EIN number, or go right to irs.gov and do it that way. Remember, because the EIN is more than just a number. And in my personal opinion, like I said, it's a foundation for proper business organization and it provides you with your prime momentum for growth. Speaking of growth, tomorrow, we're going to assess an important topic that many of you have asked about. And this one was a tough one for me to put together, but I got a lot of people asking this question, and that's why I don't feel like I'm doing well financially, even though I am according to most experts. So, we're going to have a fascinating exploration tomorrow of the emotional side of money management.

A lot of people get hung up on this. They say to me, "Ralph, look, you know, everybody says like, according to the experts, according to the numbers, man, I'm doing well financially, but I just don't feel like it." So, that's going to be on tomorrow's show. Someone, I encourage you not to miss it. Now, remember, my passion here is to help you achieve financial success. I want to see you live out your dreams.

I want to see you grow in your faith. As you can tell, I'm passionate about this. This is why I do what I do. I turn on this microphone. I turn on this camera. If you're watching us online on Rumble or YouTube or any of those places, you know, we try to put out the information where we can.

I don't know if you know this or not, but if you go to askpodcast.com, you can also download our daily blog. It's all different ways that we get it. But the whole point of that is my goal is to help you achieve that financial success. I want to see you live out your dreams. And I realize that you can do that while still growing in your faith. So, I'll leave you with this.

I know working together, we can master your finances from that Christian perspective. So, as I always say, stay financially savvy out there and may God bless you abundantly.

Outro:

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