Devote Yourself to creating something that gives you purpose . . .

"So many people walk around with a meaningless life. They seem half-asleep, even when they're busy doing things they think are important. This is because they're chasing the wrong things. The way you get meaning into your life is to devote yourself to loving others, devote yourself to your community around you, and devote yourself to creating something that gives you purpose and meaning."

Tuesdays with Morrie, author Mitch Albom

Monday, September 14, 2009

EIN - What Is It?

As a vendor on ETSY and a member of a local sellers group, one member was confused about whether she needed an EIN and why. She already had a sales tax license to collect sales tax on purchases made within the state of Michigan and felt like an EIN was assigned only to businesses that had employees. After reading her question and some of the resulting answers, I felt like it was a good topic for discussion in our women's network.

First EIN is an acronym for Employer Identification Number and is issued by the IRS for the purpose of identifying an organization for tax reporting purposes similar to how a SSN (social security number) is used to identify and individual. If you have filed documents to organize your business whether you are a sole proprietor, corporation, partnership, non-profit organization, trust, estate, LLC, or S-corporation, you should apply for an EIN. Many people who run small E-commerce businesses on sites such as ETSY do not look into legalizing their business through registering with the state. In many cases they use their social security number to report any income they receive. I would caution against this approach. If you are running a business, you really should research what your state requires and follow their requirements to the T.

Obtaining a sales tax license is different than applying for an EIN number; however, once you've applied for an EIN, your sales tax license number will be the same. An EIN is a nine-digit number in the format of 00-0000000 versus the format for a SSN which is 000-000-0000. Based on how the number is assigned the IRS can tell the difference between these two nine-digit numbers. The first two digits in an EIN indicate where the business is located, so if you are in the state of Michigan, your EIN will begin with 26. In larger states where more EIN's are issued, not all numbers will begin with the same two digits. At one time numbers in Philadelphia also started with the same two digits as Michigan businesses.

EIN's will never expire, they are assigned for life, and so once an EIN is assigned to an entity, that number will never be re-used even if the entity no longer exists.

The IRS assigns all EIN's once they have accepted your application. For more information on obtaining an EIN visit the IRS website through this link.

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