SOLE PROPRIETOR EIN APPLICATION SERVICE

WHAT IS A SOLE PROPRIETOR?

Most small businesses generally start off operating as a sole proprietorship.  There is little distinction between the business and the individual as both are considered to be the same entity.  As a sole proprietor, you are operating your business alone (as opposed to with partners), you are considered self-employed (as opposed to being a contractor) and the business is not incorporated nor registered with the state.  Operating a sole proprietor business means you are entitled to all the profits made by the business.  Any income from the business is treated as personal income.  You report both your business income and business expenses on your individual federal tax return when filing with the IRS.  You are also personally responsible for all of the business losses and liabilities, and your own personal assets are exposed to business risk (including the personal assets not used by the business). 

Operating a sole proprietorship business generally involves low start up costs and effort.  There is little registration required and there is no need to obtain approval of the legal business name before you can even start operations.  The legal business name of the sole proprietorship is your own legal name.  However, you can obtain and register a doing business as (DBA) name to help describe your business to your customers.

You can file your IRS individual tax return using your Social Security Number.  But many self-employed individuals prefer to obtain an employer ID number (EIN) for their sole proprietorship business.  One benefit includes decreasing the likelihood that you will be the victim of identity theft.  Providing your SSN to clients and vendors increases your chances of having your identity stolen. 

As a sole proprietor, you are allowed to hire employees for your small business.  However, you are required to register for an employer identification number if you hire any type of employee, such as an assistant, a bookkeeper, a web designer, etc.  The EIN is required once you are responsible for withholding employment taxes from your employees and remitting the withheld taxes to the IRS.

Lastly, to open a business bank account, most banks require that you supply an EIN number.  Having a business bank account means you can keep your business and personal funds separate.