In Part 1 of our Business Protections Series, we discussed how to go about registering a Limited Liability Company in the State of Colorado, and the benefits it confers on a new business owner. Now that you are the proud owner of your new business, though, there are several next steps to ensure you and the business operate separately, and that you maintain protection from personal liability.
Immediately after registering your entity, you can proceed to the Internal Revenue Service (IRS) website to obtain a Tax Identification Number for your business, also known as the Federal Employer Information Number, or “FEIN” or “EIN “for short. The purpose of this number, like your own Social Security Number, is to give your business an identification that it can use to open bank/investment accounts, obtain insurance, file taxes, and buy and sell property. It is critical that you never use your Social Security Number (or any other identification issued to you by the Federal Government) as the identification for your business, as you risk subjecting yourself to personal liability for all its debts.
To obtain your EIN at no charge, simply visit the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online, or you can search “Apply for Employer Identification Number,” and the page will appear for you. To apply online, you will need to accept the terms and conditions of the IRS, and then you are led into the application form. To complete it
- First, identify the type of entity you formed (e.g. Limited Liability Company, Partnership, Corporation, etc.). After making your choice and selecting “continue,” the site will provide you with a description of what does and does not constitute that entity. You can confirm your choice by selecting “continue” once again
- Next, you need to identify how many “Members” or owners are in the company, and then designate what state you formed it in. Depending on your selection for the number of owners, the site will give you a description of how that entity will be taxed, and what additional tax elections you might make for it. For example, by default, a single-Member LLC is treated as a “disregarded entity” in the eyes of the IRS. It is important that you consult with your attorney and/or CPA for a full explanation of how your entity will be treated for tax purposes, and what additional tax elections you may wish to make.
- Next, you need to provide the purpose for why you are seeking the EIN. Most commonly, you will simply indicate that you “Started a new business,” but you may have a different reason for applying. Make sure to select the best description for your situation.
- Next, you must identify the “Responsible Party” of the company. This is one of the owners (most commonly an “Individual,” but if the entity is owned by another business, then you need to select “Existing Business”), and it is the person with whom the IRS will need to deal directly for the entity. Select the most appropriate Responsible Party for your situation.
- Next, you will need to provide identifying information about the Responsible Party (“RP”), so that the IRS can confirm the RP is a legal person or company. To this end, you will need to provide identifying information (for an individual, name and Social Security Number; for an existing business, name and EIN). As RP, make sure to indicate that you are the owner or manager submitting this application. If you are a third party, the IRS will require the owner(s) to submit a form authorizing you to complete the application.
- Next, provide the basic contact information for the business, including physical address, phone number, and whether it has a different mailing address.
- Next, provide the legal name of the business (including any designations in the name such as “LLC”), the county and state where the company is located, in what state the Articles of Incorporation/Organization will be filed, and the start date (month/year) for the business.
- Next, you will be required to answer a series of questions about special tax issues for the business, such as whether it manufactures alcohol or owns a highway truck greater than 55,000lbs. Determine if any of these situations apply to you, and answer the questions accordingly.
- Next, you will need to choose the appropriate industry classification for your business. For example, if you are opening a LLC to hold a rental property, you should select “Real Estate.” If the first page of industries does not match your company, you may select “Other” and will be presented with a second page of options. Do your best to choose the industry most closely related to your company, and answer any follow-up questions that may result from your selection.
- Finally, after all questions have been answered, you may select to “Receive Letter Online,” which will appear after the application is submitted as a PDF document that you can print and download for your files. Alternatively, you can request that the IRS mail the letter to you. Before you end the application, you will have the opportunity to review all entries and make any necessary changes.
Most importantly, please note that once you receive the digital version, you must take care to save it to your files, because you will never again be able to retrieve the EIN online. If you close the internet browser before saving, you will need to contact the IRS by phone, provide all identifying information for you and your company, and then they will provide it to you. In addition, please know that the IRS only allows you to obtain one EIN, per person, per day. So, if you have formed multiple companies, you will need to spend a couple days before you have all the tax identifiers.
Obtaining the EIN for your business is critical, and although the application process is not always difficult, the answers you provide will determine how the IRS treats you and your company. If you input information incorrectly, or if you simply do not know what is the best choice, it can have a long-term effect on your tax structure. As such, if you have any questions on obtaining the EIN, or you would like a professional to obtain it for you, please reach out to the attorneys at Opfer | Campbell P.C. today for a free business consultation.