Keeping track of taxes in the US isn’t exactly a piece of cake. There are so many types of taxes that it’s difficult to know which ones apply to you and your business. If you don’t file your taxes correctly with the IRS, it could result in penalties, which could cost your business a lot of money. This article explains the main types of taxes so that business owners can inform themselves to see...
If you have started, or are planning to start a business which will be selling services or goods in a state which charges sales tax, then it should be your priority to familiarize yourself with what sales tax is, and if you need to apply for a sales tax number. A sales tax number is also known as an EIN number (employer identification number), or as a federal tax identification number. The following article will outline what an EIN number is, why businesses need one, and how to get a sales tax number.
What is an EIN number?
An EIN or sales tax number is used to keep track of your company’s tax responsibilities, and means that your business can collect and submit sales tax to your state’s relevant authority. Without this number, your business will not be able to collect taxes, and runs the risk of receiving fines, or more serious legal consequences. The IRS uses an EIN number to identify businesses that need to submit various tax returns. An EIN number is not the same as a social security number (used only for individuals), although the two numbers are similar in their intended use.
Does my business need to apply for an EIN?
Every business must have an EIN. Regardless if a business is non-profit, a charity, or will not have employees, an EIN is necessary so that the IRS can identify the business and keep track of its tax responsibilities. If your business is tax-exempt, please be aware that your EIN is not the same as your tax-exempt number – also note that almost every charity and non-profit organization could end up having its tax-exempt status automatically revoked if it fails to file appropriate tax returns or tax notices for three years running. Once a business applies for its EIN, the IRS assumes that the organization is legally formed, and starts tracking the business’ tax returns immediately. So, make sure your business is legally formed before applying for an EIN. Nearly all organizations are subject to automatic revocation of their tax-exempt status if they fail to file a required return or notice for three consecutive years.
How do I register for an EIN?
Most states allow you to register online for an EIN. You can do this through the IRS website, which is a secure way to ensure a quick and easy registration for your sales tax number. Make sure to contact your state’s tax authority, however, to make sure that you are able to apply online. It is important to register for an EIN as quickly as possible because in some states you will not be allowed to open for business until you have your federal tax identification number. To apply, make sure you have the following information at hand:
- The business name
- The business owners
- The business license number
- Contact information
Different states will need different information, but the above information should cover most states.
Once you have your sales tax number…
Once you have received your sales tax number, you will be expected to start reporting on your tax returns. This is why it’s important to make sure that your business is legally formed before applying for an EIN, because the IRS will start expecting tax return information as soon as you register your business with an EIN. Some of the responsibilities you’ll have include:
- Once you have your sales tax number, you have to accurately calculate and collect taxes. The items that you sell will have sales tax on them, and this needs to be calculated accordingly. Some items have different tax rates, or are tax free. A time saving option is a point-of-sale system which can do this work for you.
- Furthermore, you have to submit your taxes to the state within the right deadlines. It is important to check which state rules apply to you, as sometimes you may need to file a return even if you make no sales – make sure you check out the regulations of the state/s you are operating in.
- You will need to show your federal tax identification number according to your state’s laws. Some states, such as Oregon, do not have sales tax, so it is worth checking what the regulations are if you’re based in one of these states, but sell to other states with a sales tax. Some states, such as New York, not only have a sales tax, but require that the customers are able to see a company’s tax certificate – it is worth checking your state’s individual laws to make sure you’re operating according to them!
- Finally, it is vital that you contact your state authority about any changes in your business –whether that is a change in ownership, if the company closes down, relocates, or any change in its legal structure.
What to do if you lose or misplace your EIN
Your EIN will stay the same until your business either closes or reorganizes and applies for a new sales tax number. If you happen to lose your EIN, you can find it by contacting your bank or credit union which keep EINs on file with business’ account information. If that doesn’t work, then you can contact the IRS, which can provide EINs to your business’ officials, as long as they are able to answer the questions from the original application correctly – this is done as a security measure.