This is a familiar question a client or potential client will ask us. Some of the more common situations in need of a tax identification number are:
- Starting a business that will have employees
- Having a corporation
- Having a qualified retirement plan with $100,000 or more of plan assets
- Opening an estate
- Having a trust that is required to file a tax return
If you have your own unincorporated business and don't have any employees, you are not required to have a federal tax identification number. You can use your social security number.
Even if you are not required to have a federal tax identification number, you may choose to get one. Your bank may require it as a condition of opening a business bank account. Also, when you render services to a customer, the party paying for the service is required to issue a Form 1099. To properly complete Form 1099, the customer will request information such as your name, address and social security number. If you have a tax identification number, you won’t be required to give out your social security number.
How do you get a Federal Tax Identification number? Complete IRS Form SS-4 (Application for Federal Tax Identification Number). This number may be obtained by regular (snail) mail, fax, or online.
ACTION ITEM: Understand when you are required to have a federal tax identification number and when it might be a good idea.
Thomas F. Scanlon, CPA, CFP®