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Understanding Tax ID Numbers: A Must for Your Insurance Agency

Written by Club Capital | Oct 27, 2022 4:06:21 PM

Tax ID numbers are unique identifiers that businesses use to identify themselves to the Internal Revenue Service (IRS). They go hand-in-hand with establishing liability and financial responsibility which is critical to doing business. If you don’t have an EIN, your company will be unable to file taxes or open a bank account, among other things.

In this article we’ll explain why you need one and how you can get one for your small business.

What is a tax ID number?

A tax identification number, or TIN, is a 9-digit identification number that the Internal Revenue Service (IRS) assigns to individuals and businesses for tax purposes. 

There are three types of tax ID numbers that can serve as your identification for tax purposes:

  • a social security number (SSN)
  • an employer identification number (EIN)
  • an individual taxpayer identification number (ITIN)

When you start a business, you need to make sure that you have a tax identification number, or Tax ID Number. If you don't have one yet, here's what you need to know about getting one so your small business can operate legally.

Do you need a tax ID number?

If you are a sole proprietor or single-member LLC, then you don't need a federal tax ID number. You have already been assigned an SSN (Social Security Number) and that is all the identification the IRS will require from individuals who file taxes on their own.

However, sole proprietors are able to obtain an EIN and it is necessary if you need to hire employees, file an excise or pension plan tax return. 

You need a federal tax ID number if your business is:

  • A corporation, limited liability company (LLC), partnership or other entity recognized by the IRS as an organization for federal income tax purposes.

  • A nonprofit organization that has applied for and received status from the IRS as a 501(c)(3) tax-exempt organization.

Club Capital provides monthly accounting, tax, and CFO services for insurance agency owners. With 100% of our clients in the insurance industry, we are built to help you grow your agency faster with industry-specific accounting, tax, and CFO services.

Why you need a tax ID number 

There are many reasons why you may need a Tax ID Number or an employer identification number (EIN). In order to open a bank account, get a business license, pay taxes, and more, you will need to go through this process. If you want to earn money with your small business then it is important that you get a Tax ID Number to help track what your company makes in revenue and how much money they should be paying in taxes.

Getting an EIN is pretty easy as long as you have all of the correct information available.

How to apply for an employer identification number (EIN)

  • You can apply for an EIN online by visiting the IRS website.

  • You can apply for an EIN by phone by calling 1-800-829-4933 (1-800 TAX FORM) or mailing Form SS-4 to the IRS.

You can also find helpful information from the IRS on eligibility and requirements

 

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