- In most cases, you'll need an EIN (Employer Identification Number) to open a business bank account, especially for corporations, partnerships, and those with employees.
- Having an EIN allows you to separate your personal and business finances, aiding in record-keeping and protecting personal assets.
- An EIN enhances your business's credibility, streamlining access to loans and helping build a business credit profile.
- EIN simplifies tax filing, reducing the risk of IRS audits and penalties.
- Using an EIN shields personal assets from potential business liabilities, a crucial aspect for business owners.
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.
Can I Open a Business Bank Account With Just an EIN?
In most cases, no. While an EIN is necessary to open a business bank account for partnerships, corporations, or LLCs with employees, it's just one of several pieces of information that you might be required to provide.
Depending on your business structure, you may also need to furnish the following:
- Sole proprietorship: Business license, business legal name, DBA (doing business as) name, and any necessary minimum opening deposit.
- Partnership: Business legal name, DBA name, partnership agreement, and state certificate of partnership.
- Corporation: Business legal name, DBA name, and corporate bylaws.
- LLC: Business legal name, DBA name, and LLC operating agreement.
However, if you're a sole proprietor or an LLC without employees, you may not require an EIN to open a business bank account. In some cases, your Social Security number (SSN) and identification may suffice when opening an account at certain financial institutions.
Can I 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.
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.
Pros & Cons of Opening a Business Bank Account Without an EIN
|Allows you to keep taxes simple for your sole proprietorship||Opens yourself up to identity theft as your Social Security number is tied to your business accounts|
|Business loan repayment taken out in your Social Security number could help strengthen your personal credit||Some banks won’t do business with companies without an EIN|
|Separation of business and personal finances is harder when both accounts are opened under your Social Security number|
|Personal credit could be damaged if something goes wrong with the business|
Not having an EIN can potentially limit your options when it comes to banking and business loans at local banks. It can also complicate the separation of your business and personal finances when both accounts are tied to your Social Security number. This can lead to challenges during tax season and potentially trigger IRS audits. Failing to apply for an EIN when needed can result in tax penalties.
Furthermore, conducting business under your Social Security number puts your personal credit at risk in case of business issues. Using a personal checking account for your business is not recommended.
Obtaining an EIN offers several benefits, including enhanced credibility with banks and vendors, expedited business loan approval, and the opportunity to build your business credit. Additionally, it allows you to hire employees, facilitating business growth.
Who Is Required to Have an EIN
The IRS mandates obtaining an EIN for businesses, except sole proprietors or single-member LLCs. Additionally, you must secure an EIN if your business meets any of the following criteria:
- Employing staff
- Operating as a corporation or partnership
- Filing specific tax returns: employment, excise, or alcohol, tobacco, and firearms
- Withholding taxes on non-wage income for nonresident aliens
- Managing a Keogh plan
- Being part of a bankruptcy proceeding
- Purchasing or inheriting an existing business and operating it as a sole proprietorship
Furthermore, if you are associated with any of the following entities, you must also obtain an EIN:
- Trusts, excluding certain grantor-owned revocable trusts, IRAs, and Exempt Organization Business Income Tax Returns
- Real estate mortgage investment conduits
- Nonprofit organizations
- Farmers' cooperatives
- Plan administrators
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.
Benefits of Opening An Account With An EIN
Business owners who already possess an EIN enjoy a broader range of banking options. You can opt for a well-established large bank known for its solid reputation or choose a smaller credit union that offers a more personal touch. Regardless of your preference, having an EIN typically streamlines the account qualification process.
When you open a business bank account with an EIN, you can also:
- Segregate your personal and business finances, which is essential for effective record-keeping and simplifying tax obligations. This separation can safeguard your personal assets in case of legal issues. Additionally, displaying your business name and branding on the account enhances your professional image in the eyes of potential clients and investors.
- Begin building business credit, starting with a bank account linked to your business. Subsequently, you can explore options like obtaining a business credit card from the same financial institution. Since many small-business credit cards require an EIN, you'll already be prepared to initiate this process. Responsible spending and timely debt repayment will contribute to the growth of your business credit score.
Alternatives to Opening a Bank Account With An EIN
If your business doesn't necessitate an EIN, and you wish to open a bank account without one, you'll usually have to resort to opening a personal checking account and using it for your business activities. However, this isn't the recommended approach.
For the majority of small-business owners, the simpler and more advisable solution is to obtain an EIN through the IRS website. This process is cost-free and enables you to manage your business finances with greater efficiency.
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.
Frequently Asked Question
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.
What documents do I need to open a business bank account?
The specific documentation you'll need for your business may vary based on its structure. However, in most cases, you should prepare the following items:
- Employer Identification Number (EIN) or Social Security Number (if you're a sole proprietor).
- Fictitious Business Name Certificate or Doing-Business-As (DBA) Certificate.
- Business Formation Documents.
- Organizational Documents, including ownership agreements.
- Business Licenses.
- Government-Issued Photo ID (e.g., passport or driver's license).
- Your Contact Information.
- Business Revenue and Tax Information (if applicable).
How much does it cost to get an EIN?
Obtaining an EIN is free, and you have a couple of options to do so. You can complete IRS Form SS-4 and send it via fax or mail to the IRS. Alternatively, you can apply for an EIN directly on the IRS website. The online application typically takes about 10 minutes, and there are no physical forms to complete. You'll receive your EIN instantly online, and it can be used for most business needs right away. However, please note that you may need to wait approximately two weeks before you can use the EIN for electronic tax filing.
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