Posted on September 6, 2011May 31, 2016 by Jan Roberg

Estimated Taxes for Small Businesses

Photo by Shayne Kaye on Flickr.com

I’ve gotten this question twice in the past week so I thought I’d post it on my blog:

I pay my estimated taxes out of my personal account, but really I’m paying estimated taxes for my small business, shouldn’t I take the money out of my business account?

That’s a really good question, and the answer is “It depends.” If you own a C corporation, then the answer is yes. But most of the small businesses I deal with are Sole Proprietors and Sub S Corporations; if you have one of those, the answer is NO!

Here’s why Sole Proprietors and Sub S Corporation Owners should not pay their estimated taxes out of their business accounts: All of the profits from these kinds of companies are taxable to the individual that owns them. The companies themselves pay no tax, the individual owner does. Because the owner, not the company, owes the tax, the owner must pay from his personal account.

Let’s do an example: Daisy Duke owns Daisy’s Delightful Doggie Daycare (D4). It’s basically a pet-sitting business she runs out of her home. Daisy’s pretty savvy about accounting, so she maintains a separate bank account for her business and she claims every legal deduction she’s entitled to. She runs all of her business expenses through her business account.

For the quarter, Daisy has $10,000 of income and $6,000 of business expenses. She wants to make an estimated payment on the remaining $4,000 of income. Daisy determined that she spends 40% of her net income on federal taxes so she’s going to send $1600 to the IRS. This check is not written on the D4 checking account, but instead on Daisy’s personal account.

Note that Daisy runs all of the business expenses through the business account, but because the taxes are not considered to be a business expense, they can’t go in there. If Daisy were to take her kids to Chuck E. Cheese’s for pizza, she would not pay for that out of her D4 account either. Now it’s sounds crazy equating estimated tax payments with Chuck E. Cheese’s Pizza but to the IRS’s eyes, they’re the same thing—a personal expense.

So here’s the next question that people always ask: What if Daisy doesn’t have enough money in her personal checking account to pay the taxes? That’s another good question. Remember, though, that the reason Daisy has to pay estimated taxes is because she’s making a profit. She’s got that $4,000 of profit sitting in her business bank account. She can make a payment to herself because she owns the company. She’s paying herself a draw (or maybe with an S Corp a salary), but when you own the business and you have a separate business account, you are allowed to pay yourself from the account.

Next question: But isn’t it a waste of time? Aren’t you writing two checks-one to Daisy and then one to the IRS, when writing one check directly to the IRS would solve the problem? No, it’s not a waste of time because it’s worth the extra five minutes to keep your books straight.

If you keep your business books strictly for business, with no personal expenses running through there at all, the IRS is going to think you’re pretty boring and not worth wasting much time on trying to audit you. This is one of those times where boring is good! Remember, paying your estimated taxes out of your business account is seen to be the same as taking your kids to Chuck E. Cheese’s Pizza. It’s a cheesy expense! (Sorry, that pun flew out of the keyboard, I couldn’t stop it.)

Many small business owners get into tax trouble because they wind up using their business accounts for personal spending. While your estimated tax payment seems like it would be a business expense, it’s not and you have to keep it separate.

Posted on September 2, 2011May 31, 2016 by Jan Roberg

ATMs and the IRS: Why Your Business Shouldn’t Take Cash Out of the ATM

Photo by Jenny Brown on Flickr.com

You should never take cash out of the ATM using your business bank account. Never.

If you never have and never will take ATM cash out of your business account, you’re done here. Go read a different post, I’m not worried about you. If you still think it’s okay to make a cash ATM withdrawal from your business account, keep reading. Imagine you’re routinely getting whacked upside the head with a rolled up newspaper about every two minutes until you learn this lesson.

Why not use the business account for the ATM?

1. It’s a blazing red flag to the IRS that you’re doing something naughty. Even if everything you do related to your ATM withdrawals is 100% legitimate, to the IRS it says, “I’ve been a scumbag! Make me pay more taxes!” It’s really not a message you want to convey.

2. It’s bad bookkeeping practice. You have income and expenses. You take money in and you spend it. You need to account for how you spend it. An ATM cash withdrawal doesn’t give you the paper trail you need for your expenses. Even if you’re good about keeping those receipts (and believe me, you’d be the exception) you’re still stuck with issue number 1 – blazing red flag to the IRS.

But I own the business and it’s my money, why can’t I just make a withdrawal? Good question. Let’s say you’re just a plain sole proprietor, nothing fancy. You’re absolutely right; that’s your money and you’re entitled to use it as you see fit. If you’re keeping a separate bank account for your business, then you should write a check from your business to you for your “draw”. That’s legit and it gives you a paper trail. Whenever you take money from your ATM, it is considered as going to you and you’ll be taxed as that being your profit.

Here’s an example: Fred takes $200 a month out of his business account to pay some contract laborers. He occasionally hires some kids from the local football team to help him with his moving company. He pays the boys in cash and has never paid any one boy more than $600 so he hasn’t had to issue a 1099 (1099s must be issued if you pay $600 or more.) Fred gets audited by the IRS. He’s claimed $2400 in expenses for contract labor. That’s the $200 a month cash he’s paid to the boys on the football team to help him with some moving projects. What the IRS sees is $2400 in ATM cash paid directly to Fred and they charge him $1200 in taxes and penalties for under-reported income. Fred will have a very difficult time fighting this. It’s possible that he can fight and win, but why be in that position in the first place?

Let’s move it up a notch, what if Fred has an LLC-a limited liability company? Let’s say Fred takes an ATM withdrawal from his business account so he can take his wife out to dinner. Once again, its Fred’s money and he has that right. But now Fred is treating his business account as a personal account. This messes up his “limited liability” status. If you don’t keep a strict line between your business account and your personal account, you risk losing your limited liability protection. This makes it even more important for Fred not to use his business ATM card for cash if he has an LLC.

How’s your head? Been smacked enough times? Bottom line: never make an ATM cash withdrawal from your business bank account. If you want to pay yourself, write yourself a check. If your business needs to use cash, set up a petty cash account and fund it by writing a check for petty cash. A clean paper trail will keep the IRS off your back and that means money in your pocket.

Posted on August 2, 2011May 31, 2016 by Jan Roberg

Five Things You Can Do to Reduce Your Self-Employment Taxes

Author’s note: Yes, this is a stock photo that I bought online. My home office has never been this neat and tidy. But that green accountant’s lamp? I’ve got that on my desk too!

A fellow business owner told me that he was really surprised last year at tax time. His business had done well and he didn’t have many expenses to offset his income. You want to have income—it’s sort of necessary if you like to do things like eat, wear clothes, and have a roof over your head, but the more income you have, the more you pay in taxes. These tips are things that you might be spending money on anyway that can help reduce your “business income” and reduce your self-employment tax.

Claim a home office. If you are working for yourself, you should have a home office. I actually have two offices: one in an office building where I meet clients, and my home office where I perform administrative duties like paying my company’s bills. If you have more than one office, your home office should be your administrative office—doing so makes your commute to the other office a deductible expense (normally, commuting is not deductible).

If you’re already claiming a home office, make sure that you’re maximizing your deduction. Did you know that hallways, stairways, crawl spaces, and bathrooms don’t count towards your total square footage? And don’t forget to claim the depreciation on your home. I’m always amazed at the number of folks who don’t claim it. If your business has a loss, the deduction carries forward to next year.

Hire your kids. If you have children under the age of 18, you can pay them to work for you and you aren’t required to pay FICA, and you don’t have to pay Federal Unemployment tax on them either. The work has to be real and the wages have to be commensurate to what you’d pay someone who is not your child. They also have to do work for the company, not things like clean up the kitchen for this to count. Have them keep a time sheet so that you have documentation of the work in case the IRS checks on it. For this you must be a sole proprietor, you can’t be a Sub S corporation.

Hire your spouse and set up a Section 105 Health Plan. Sure you can deduct your health insurance on the front of your tax return, but it doesn’t affect what you pay in self-employment taxes and it only covers your health insurance. With a Section 105 Health Plan, you hire your spouse as an employee and the compensation package includes 100% health coverage for him (or her) and his family (which includes you). This has the effect of putting all of your family’s health care expenses as a deductible business expense. Just like with hiring your kids, your spouse will have to perform a real job for the company, keeping a time sheet, etc. (You must be a sole proprietor, LLC is okay. You cannot be Sub S Corporation.)

Maximize your auto deduction. The majority of people claim auto mileage for their business because it’s easier (I’m talking about claiming real mileage and not the folks who go around claiming 40,000 business miles a year on a car that’s only been driven 12,000. I like to stick with honest deductions). For a lot of folks, it’s worth it to claim your actual expenses, especially now with the price of gas so high. Take the time to really keep track of your actual auto expenses for one year. This will vary a lot depending upon your auto usage, but for some people it’s a big savings. Compare your actual expenses to the standard mileage rate and claim whatever gives you the larger deduction. Remember, you still have to keep track of your business versus personal miles to claim your actual expenses as a deduction.

Posted on July 8, 2011May 31, 2016 by Jan Roberg

Why Closing the Tax Gap Won’t Solve America’s Budget Crisis

Photo by Calita Kabir on Flickr.com

According to reports from Washington, instead of raising taxes or cutting spending we could solve America’s debt crisis simply by going after uncollected taxes. It’s claimed that over $400 billion dollars a year go uncollected. The difference between what is actually collected on time and what the IRS believes should be collected is referred to as the “tax gap.”
While I am quite certain that there is a gap between what is owed and what gets paid, I am equally certain that the tax gap is significantly under $400 billion per year. Working from the other side of the table, I find it very rare that the amount the IRS claims someone to owe in debt is accurate.
One case I worked on involved a young woman who received an IRS notice stating that she owed over $2 million in taxes. Yes, two million dollars! Clearly, there was a mistake. Once we sorted the whole thing out, it turned out that she owed $13. That’s not a typo; the IRS said she owed $2 million when she really owed $13. How many more mistakes like that are out there?
Although the $2 million case is an unusual example, the taxpayers I work with who receive collection notices from the IRS often wind up receiving refunds after I’ve finished processing their paperwork. This is not because I’m some kind of master tax genius (although I‘d like people to think so), but merely because I’ve done the paperwork correctly.
The tax code has become so complex that even college educated professionals have trouble navigating the tax code. This is my job, I have training and experience, and it’s not always easy for me to interpret the tax code. Sometimes, even IRS personnel have trouble interpreting the tax code. I recently represented a taxpayer at an audit that was very focused on one item on the tax return. Although it was implied that the taxpayer had prepared the information “wrong,” there were no guidelines as to how to do it “right.” I asked the auditor, “Tell me how you want this done. I will do it.” She couldn’t answer me. Not because she was stupid or incompetent, but because there are no IRS guidelines for that particular issue (Yes, we won that audit).
One particularly galling point in the “tax gap” argument is a claim made by Benjamin Harris, a research economist at the Brookings Institution. He was recently quoted in an article in the St Louis Post Dispatch, “You kind of feel like a sucker as a wage earner. Here you are paying taxes because someone else is paying you, but if someone else is getting paid on their own, they pay taxes at half the rate.” As a self-employed business owner, this makes me furious. First, I pay taxes at a higher rate than Harris because I have to pay my self- employment tax over and above my regular tax rate. Additionally, as an employer, I pay my share of my employee’s FICA taxes, a benefit that Mr. Harris receives but appears to be blind to. To see the entire article, here’s a link: http://www.stltoday.com/news/national/article_890fa85f-c788-5a96-978c-d90edae37593.html?print=1
Are there people who cheat on their taxes? Certainly, and they should be caught and prosecuted to the full extent of the law. However, do not assume that all business owners cheat on their taxes. They probably don’t owe what the IRS says they do.

Posted on June 22, 2011May 31, 2016 by Jan Roberg

Tax Tips for Artists: Why You Might Not Want to Donate Your Art

Photo by John Morgan on Flickr.com

If you’re an artist, you may have been asked to donate a piece of your artwork for a good cause. You might have also been told that it’s good PR for you, because people at the event will get a chance to see your work and bid on it. And of course you’ve been told that your donation is tax deductible.

While it’s true that your donation is deductible, it’s not nearly as deductible for you as it is for me. Come again? You heard me right—your art donation is not as deductible for you as it is for me. Let me give you an example: Let’s say you donate a painting that would normally sell for $500. If I bought that painting and donated it to a charity, I’d get to write off the full $500 on my tax return as a charitable deduction. If you donate that painting instead, you can only write off the cost of the materials that you used to create that painting—depending upon what materials you’re using, that’s maybe $50 to $100.

Additionally most artists are sole proprietors, their art income goes on a Schedule C on their regular 1040 tax return. Your charitable donation can’t be counted as a business expense, it must go on your Schedule A with your other personal itemized deductions. If you don’t already itemize your deductions on a Schedule A, that donated painting gives you no tax benefit whatsoever.

I’m not saying that you can never donate to charity, I like charities and I think they deserve donations. It’s just that when you donate your art, you’re not getting much bang for your buck. So what are your alternatives?

One thing is to pay to “advertise.” For example: I support a small, local ballet company. I used to just donate money to them, but now instead I purchase an ad in their performance program. They get the money they need and I get a business deduction for advertising. This is especially good for me. Before, being in the 25% tax bracket, my $100 donation was worth $25 off my taxes. Now, as a business expense, my $100 advertisement reduces my taxes by $40 ($25 from my regular tax plus an additional 15% for my self-employment taxes.) The advertising option gives you the best tax value on your donation because you can use it to offset your self-employment taxes.

Do be careful about the charity advertising though. I once did an ad thinking I was supporting a local organization, when really the money was going to an advertising agency. The organization got some money, but most of it went to the promotional company. I won’t make that mistake again.

Another option for you is to donate the profits from one of your art pieces. For example, let’s take that $500 painting; assume you paid $100 for your materials,that’s a $400 donation to the charity. Most likely, that’s a better donation than what the charity would gain if they auctioned one of your pieces off. If you’re in the 25% tax bracket, you still get a $100 reduction in your taxes. It won’t help with your self-employment tax, but you do get the good feeling of making a donation and your art work sells for its actual retail value instead of some discounted auction price (another disadvantage of donating your art for charity.)

There are many worthwhile causes out there that need and deserve your help. If providing a piece of your art work is how you want to help, by all means do it. Just remember, it’s not your best tax strategy.

Posted on June 3, 2011May 31, 2016 by Jan Roberg

Small Business Bookkeeping Tips, for People Who Hate Bookkeeping

Photo by Dystopos, Acme adding machine as shown in "Cheese Chasers" directed by Chuck Jones 1951.

I hate bookkeeping! I know, you probably found this site looking under “accountants” but I hate doing bookkeeping. I’ve found that many other small business owners do too. So if you’re like me, you want to keep your bookkeeping time spent to a minimum so you have more time to work on the part of your business that you love. Here are some of my tips to keep things simpler:

Make a separate bank account for your business and keep it apart from your personal money. Income goes into the business account, expenses go out of the business account. If you do this one step, your bank statements become a perfect record of your business.

What if I accidentally make a business purchase with my personal funds? Write yourself an expense report, just as if you were working for a major corporation- attach receipts, and write a check to yourself as an “expense reimbursement.”

What if I need to take money out of my business account to pay for personal stuff? Once again, you write yourself a check, label that as “owner’s draw”. One business owner I know writes checks for his reimbursements and uses account transfers for his draw so that it’s easier for him to keep track of what is what. The important thing to remember is that your draw is not an expense, that’s part of your profit.

Never take cash out of your business account with your atm card. Never.

What if I don’t have enough money to pay my business bills with my business account? Can I pay my business bills with my personal checking account? No. You should write a check from your personal account to your business account and pay the bills from there. Keep track of that. When your business is doing better, you can reimburse yourself.

I get a 1099 at the end of the year and I write less than five checks a month for expenses, if even that. Do I really need a separate bank account? In a case like this, probably not, you could get away with a handwritten log of your expenses. The point is to do what’s easiest for you, in this case separate accounts might be more of a headache.

I’ve got the opposite problem. I’ve got lots of little expenses from all over the place. It takes me hours to load it all into Quickbooks. Any help for me? Maybe, here’s a tip I learned from one of my clients that might work for you. This fellow had lots of expenses, but the vast majority of them fell into two categories: production and shipping. He got two credit cards, the Visa he used exclusively for his production expenses, and the Mastercard for shipping. Any other expenses he put on his debit card or wrote checks for, but they were minimal. Each month, as he paid his credit cards he entered that one expense as his production or shipping expense instead of the dozens of smaller charges that he had been entering. If you’ve got a business where you can group your expenses like that, this might be helpful for you. Make sure you save all your receipts in a file with your credit card statements to back up those entries in case you get audited.

If you’ve found a tip that helps you keep your small business bookkeeping simple, please share it here. Thanks.

Posted on January 16, 2011December 3, 2016 by Jan Roberg

Missouri Tax Credit for Self-Employed Health Insurance

MO self-employed health insurance tax credit

One of the really fun parts of my job is finding cool tax deductions or tax credits that most people don’t know about that can really benefit people. Here’s a cool one: The Missouri Self-Employed Health Insurance Tax Credit.

The thing about Missouri Tax Credits is that most of them won’t just pop up on your computer software. You have to actually know about them and specifically request the forms to come up. Major things, like the Missouri Property Tax Credit will usually have a pop-up reminding you to apply for it if you meet the criteria, but most other tax credits just hide in the corner. The Self-Employed Health Insurance Tax Credit is one of the sneaky, hide in the corner credits.

How sneaky is it? To tell you the truth, I called the Missouri Department of Revenue to ask a few questions and the person on the other end of the phone had never even heard of it. She had to go hunt down someone who knew about the Self-Employed Health Insurance tax credit before she could answer my question. I’ve never had that happen before. The Missouri Department of Revenue front line folks are pretty knowledgeable and quick with answers. While I tend to stump the IRS on a regular basis (I think if they had caller ID they’d never answer my phone calls,) I’ve never stumped a Missouri DOR employee before.

Here’s how it works: Let’s say you own your own company and you also pay for your own health insurance. Normally, on your federal tax return, you can claim a deduction for your health insurance up to the amount of your business profit. But what if your business didn’t have a profit? Or if your business profit was less than what you paid for your health insurance? That’s where the Missouri Self-Employed Health Insurance Tax Credit kicks in. Whatever tax savings you lost on your federal income tax return because you couldn’t claim your self-employed health insurance will become a tax credit to you in Missouri.

I know that sounds pretty confusing so here’s an example: Let’s say your federal taxable income on your 1040 was $100,000 (I like to use round numbers.) But you couldn’t claim your self-employed health insurance because your business actually had a loss (we’ll assume the $100,000 is from your spouse’s wages and other income.) Your health insurance cost you $6,000 for the year. If you could have claimed that as a deduction, it would have saved you $1,500 on your federal tax return. With the Missouri Self-Employed Health Insurance Tax Credit, you get to take that $1,500 as a credit against your Missouri state income tax liability. How cool is that?

Now that was a pretty drastic example, but even so, claiming a dollar for dollar tax credit against what you missed out on from your federal income tax return is a great deal. Here’s a link to take a look at the form:

Missouri Self-Employed Health Insurance Tax Credit

So you want to know the best part? Many of the Missouri tax credits have limitations that, if missed, you don’t get a second chance to claim them. But with the Self-Employed Health Insurance Tax Credit, if you happened to miss out on claiming this credit last year, you can go back and amend your prior Missouri tax return and still get the refund.

Posted on December 10, 2010May 31, 2016 by Jan Roberg

Last Minute Tax Tip: Hire Your Kids

Reduce your taxes, hire your kids to work for you!

Do you own your own small business as a sole proprietorship? Do you have kids? If so, did you know that you can pay your kids to work in your business and they won’t be subject to social security and Medicare taxes? Now if you pay them more than their standard deduction, they could be subject to income tax withholding but even so, not having to pay the employment tax is a big savings. You also don’t have to pay Federal Unemployment taxes either.

Why is this good to know? Well if you pay your kids wages from your business, it’s a business deduction and that’s money you’re keeping in the family and not paying self employment taxes on. It’s important to keep the wages commensurate with work that the kids actually perform. The IRS isn’t going to buy the idea that your 4 year old is earning $50,000 a year doing statistical analysis for your company. But what can your kids actually do?

My first job was handling all of the scut work that the secretaries in the office wouldn’t do. I cleaned the white board in the meeting room, made the coffee, made photocopies and ran errands. I was happy because I was getting paid, the secretaries were happy because they didn’t have to do those jobs any more, and the boss was happy because his staff was happy. I was 15 at the time, but frankly a much younger kid could have handled that job.

My son’s in college now, but he used to be my IT guy. For the cost of a Chucky Cheese pizza and some tokens, he’d take care of any computer problems I had. After he left for school, I had to hire a professional to help me. The freelance IT person I hire costs me $99 per hour. I had no idea how valuable my son was as an employee until he went away. I had never paid him a wage. (Granted, I’m paying through the nose for tuition but that’s another story.) What I should have done was pay him a wage and let him buy his own pizza. That would have reduced my self-employment taxes.

So what about your kids, do they help you with your business? Can they? Would they? If the answer is yes, then you might want to consider putting them on the payroll.

Who’s allowed to do this? There are only two categories of businesses where you can put your children on the payroll without paying employment taxes. One is sole proprietors; that’s businesses that file a schedule C with their 1040 tax return. The other is partnerships where both of the partners are the parents of the children working. If there is even one partner who is not a parent of the child, then you must pay the payroll taxes. Also, if you own a corporation of any kind, you must pay employment taxes on your child’s wages.

With the year end fast approaching, and winter break heading this way, now might be a perfect time to test the waters for hiring your kids. The money you pay them now will reduce your taxable income for 2010.

Posted on December 2, 2010May 31, 2016 by Jan Roberg

Last Minute Tax Tips: Do You Own a Corporation?

When I ask, do you own a corporation, I’m talking about a C-Corp, not an S-Corp. And I’m not talking about being just a shareholder in Coca Cola or GM, this post is specifically for people who own their own business and have it set up as a regular corporation.

It’s time to think about a qualified dividend distribution. Right now, qualified dividends–and here I’m talking about money that’s been held for over one year, are taxed at the capital gains tax rate. Right now, the capital gains rate for most people is 15%. Next year, there’s talk of changing that. And even with the various proposals going on in Congress, qualified dividends may still lose out and get taxed at a higher rate anyway. No matter what, you can pretty much assume that the tax rates will not go down.

So, right now, it’s time to think about a distribution. Many owners of small corporations like to keep excess funds within the corporation (that’s your retained earnings) and it makes sense so that you have money to grow the company with. And, to be honest, for some people, it’s a bit of a tax shelter-“save it for a rainy day” kind of thing. Holding money in the corporation so they don’t pay personal income tax on it unless they really need it. If you’re in the “rainy day tax shelter” camp–now is your rainy day. For most people in your situation, taking the money now is going to cost you less than taking it in the future.

So what do you need to do? Well, I always tell my clients to never take some random advice they read off of the internet, and I’m going to tell you the same thing. You need to sit down with your accountant (or accountants if you use separate ones for your business and personal taxes) and make a plan. Here’s what you want to consider:

1. How much money is available in the corporation to give as a qualified distribution? Qualified is the important word here because a non-qualified distribution is taxed at your ordinary income rate. You want a qualified distribution because of the lower tax rate. Use your good business judgement, don’t take out too much, just the excess.

2. You’ll want to see how your personal 2010 tax return will be affected if you take in that extra income. (Also, if you’re not the sole shareholder, will taking a distribution hurt your fellow shareholders as well?) Saving money on the tax rate is good only if it doesn’t hurt you somewhere else. For example, if your higher income keeps you from claiming the education tax credit on all that tuition you paid to send your kid to college, then the cost of taking the qualified dividend might outweigh the benefit of the lower tax rate. That’s why you want to sit down with your tax person and figure this out before you try it. You may be playing a balancing act — let’s say a $20,000 distribution won’t work, but what if you take $5,000 instead? Computer tax planning programs were made for these situations. What’s important is that you do it now, before December 31st. If you wait until next month–you’ve missed your opportunity.

Posted on November 15, 2010January 13, 2017 by Jan Roberg

How to Get an EIN Number for your Business for Free

You can get an Employer Identification Number for your small business for free at the IRS website.

If your business needs an EIN (that’s an employer identification number), it takes about 5 minutes on the IRS website and you can get one for free. I mention this because I found a company online that will do it for you for $75. For an extra $75, they’ll put a rush on it. So you can pay $150 for the rush job, or you can do it yourself for free in less time than it takes to fill out their online payment agreement.

The first step is to go to the IRS website. This link will take you right to the EIN page.

IRS EIN link

This page has links to a lot of information so it’s pretty useful. It also has the link to go to the EIN application. The online application has limited working hours, you’re not going to be able to file the application at 3 in the morning. They’re basically open from 6 am until a little after midnight Monday through Friday with limited weekend service.

Before you actually apply for an EIN, think–do you really need one? If you’re a corporation or a partnership, the answer is yes. If you are an LLC, that means you are a limited liability company-that does not make you a corporation, so just because you are an LLC doesn’t mean you need to have an EIN. Other reasons for needing an EIN include if you have employees, need to pay excise taxes, are a non-profit organization, trust or estate.

You might not need an EIN per IRS standards, but it may be beneficial to your business anyway. For example: if you work as an independent contractor and do not want to give your social security number out or you are setting up a bank account in your business name. Some vendors won’t give you business discount rates unless you have an EIN number, and I had one client who needed one because a vendor wouldn’t work with her at all because she didn’t have an EIN and she really needed the account.

Generally,iIf you are working as a contract laborer and filing your return as a sole proprietor, it’s most likely that you do not need to have an EIN number.

Applying for the actual EIN: I recommend using the online application. The application is presented in an interview style format. It asks questions, you answer them and when you get to the end. voila’ you have an EIN number. It sort of has a dummy proof mode too that let’s you tab back if you’ve answered a question incorrectly. I recommend having access to a printer when you do it so that you can print out your new EIN when you’re done. You don’t want to lose that number once you’ve got it.

Before you do the online application, you might want to check out the written application form so that you have all of your information handy before you apply: http://www.irs.gov/pub/irs-pdf/fss4.pdf

To go straight to the online application, click this link:

https://sa2.www4.irs.gov/modiein/individual/system-unavailable.jsp

On little glicth, for some reason, if you need an EIN because you receive home health care services, you can’t apply for your EIN online, you have to use another application method. I suggest calling on the toll free number: 1 (800) 829-4933. That’s the toll free number for the tax and business specialty hot line. You will have to wait on hold for awhile, but it’s still faster than using the mail.