As a business owner, one of your first steps is to open a business checking account. It's an essential step to getting your business up, running, and profitable.
As you're going through the steps, you might find yourself wondering if you should just use your personal account, which bank account to pick and if you need an EIN to open a business checking account -- especially if you don't have one.
Below, we break down everything you need to know about an EIN, opening a business bank account, and everything in between.
Is It Possible To Open A Business Bank Account Without An EIN?
Short answer: sometimes, but this is typically reserved for single-person enterprises (LLCs), freelancers, and sole proprietors who have no employees and able to use their Social Security number.
Banks usually require you to have an EIN, although this varies depending on the financial institution and their policies, so you will have to check these before applying.
Sole proprietorships and single-member LLCs are usually taxed as individuals so they aren't required to have an EIN, so banks may allow them to open an account with only your Social Security number.
Other types of businesses may be able to use documentation besides an EIN, but just applying for an EIN may be the easier and time-saving option.
Opening A Business Bank Account Without An EIN
Since sole proprietors and single-person LLCs are taxed as an individual, an EIN isn't always necessary. While we recommend getting an EIN regardless, you will still able to get a business checking account in some cases. However, you will have to contact financial institutions to see if their policies allow you to apply without an EIN and you'll have to provide other types of documentation.
What Is An EIN?
An EIN (Employee Identification Number) is a nine-digit number -- also known as a Federal Tax Identification Number or business tax ID -- is a unique identifying number for a business that can be used for multiple reasons (such as taxation, hiring employees, etc).
You may not need one depending on your business structure, but it can be helpful for a variety of other reasons.
Why An EIN Is Important
Just like a Social Security number identifies an individual, an EIN is a unique identifier for businesses. Generally, an EIN is used for business taxation (based on classification, revenue, employees, and more) or hiring purposes, and without it, you will be viewed as a private individual taxpayer (such as when you're a sole proprietor or LLC) by the IRS.
An EIN is important for a number of other reasons:
- Banks typically require an EIN to confirm that your business is legitimate and confirms the legality of your business dealings, which protects them from any possible legal issues. Banks will also ask for other official documents and licenses, such as your LLC operating agreement, business office address, doing-business-as name (DBA), mailing address, and more. Documents may vary depending on your state of residence and work.
- An EIN makes your business appear more legitimate to vendors.
- You may need it to take out a business loan. While not all lenders require an EIN, it can help speed up the process.
- It will make it possible for you to apply for a business credit card.
- You must have an EIN to hire employees.
- Protect your identity by using a number to identify your business rather than using your Social Security number, reducing your risk of identity theft by lowering its use. Your EIN could still be stolen, but it won't be as big of a problem as a stolen SSN.
- It's important to separate your personal and business finances to make sure you are reporting taxes correctly and to avoid losing your personal assets in the case of a lawsuit, and an EIN can help you get the bank account you need.
Even though sole proprietorships and single-member LLCs don't require an EIN to open a bank account, you will need it to hire employees and submit tax returns.
As you can tell, getting an EIN is important, even if you're a sole proprietor. Once you complete the LLC process, your next step should be to obtain an EIN from the IRS.
How to Get An EIN
Getting an EIN won't take as much time as you think. Business owners can apply for one through the IRS either online, by phone (1-800-829-4933), or by filling out IRS Form SS-4 and submitting it by fax or by mail.
The Bottom Line
As stated earlier, we recommend getting an EIN so you can qualify for the best business bank accounts. Our favorite reputable business checking accounts -- BlueVine, Azlo, Lili, and NorthOne -- include banks that accept businesses with or without an EIN.
What Is An EIN?
An Employee Identification Number (EIN) is used to identify a business entity and is also known as a Federal Tax Identification Number.
Do I Need An EIN As A Business Owner?
In many cases, yes. An EIN is used for multiple reasons such as banking, business, hiring employees, filing employee tax returns, and more.
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