Why Your Small Business Needs a Tax ID Number

You’re just starting your business, and you’re wondering if you should get a tax ID number right away.

The simple answer is yes. If you plan to sell anything for a profit, it is typically a good idea to get a tax ID, but let us discuss this further. First off, there are two different things that people sometimes mistakenly interchange as a tax ID number.

The first is a federal employer identification number (EIN), which you get through the IRS, and it is free. Sole proprietors and limited liability corporations (LLCs) with no employees can use a personal social security number when filing their taxes and do not necessarily need an EIN. You can go to this site hosted by the IRS to fill in your details to see if you need an EIN.

The second would be a state tax ID number, also called a sales tax permit, reseller certificate or similar depending on the state you live in. For a state tax ID, you would need one if you are selling any physical goods at all. Even if you are primarily a service company if you sell parts, designs, or even e-books, you will still need a sales tax ID in most states. Each state is different, though.

Outside of the legal and tax ramifications, you will want to consult a tax professional to get specifics for your situation. I always suggest investing in a state tax ID and the EIN. The state applications are typically very little money, and it will not only allow you not to have to pay taxes on the blank goods you buy to resell, but many companies require it to sell to you at wholesale pricing. Regardless of the stage of your business, if you are a business, you need to have a tax ID.