EIN (Employer Identification Number)
BusinessGlossary term
Definition
A unique nine-digit number assigned by the IRS to identify a business for tax purposes, similar to a Social Security number for individuals. An EIN is required for businesses that have employees, operate as corporations or partnerships, file certain tax returns, or open a business bank account. Applying for an EIN is free and can be done online through the IRS website, and it is one of the first steps in formally establishing a business.
Related terms
- LLC (Limited Liability Company)A business structure that combines the liability protection of a corporation with the tax flexibility and operational simplicity of a partnership. LLC owners, called members, are generally not personally responsible for the company's debts and liabilities, meaning their personal assets are protected. LLCs can choose how they want to be taxed, either as a sole proprietorship, partnership, S-corp, or C-corp, making them one of the most versatile business structures available.
- S-CorporationA special tax designation available to eligible corporations and LLCs that allows business income to pass through to shareholders' personal tax returns, avoiding the double taxation that C-corporations face. To qualify, the business must have no more than 100 shareholders, all of whom must be US citizens or residents, and the company can only issue one class of stock. S-corps also allow owner-employees to potentially reduce self-employment taxes by splitting income between salary and distributions.
- C-CorporationThe standard corporate structure in which the business is treated as a separate legal entity and taxed independently from its owners, resulting in what is known as double taxation on both corporate profits and shareholder dividends. C-corporations can have unlimited shareholders, multiple classes of stock, and are the structure required for companies that plan to go public or seek venture capital funding. Despite the double taxation, C-corps offer advantages like the ability to retain earnings and provide employee benefits that are tax-deductible.
- Quarterly Estimated TaxTax payments that self-employed individuals, freelancers, and business owners must make four times per year to cover their expected income tax, self-employment tax, and other applicable taxes. Since these earners do not have taxes withheld from a paycheck like traditional employees, they are required to estimate and pay their tax obligations on a quarterly schedule. Failing to make estimated tax payments or underpaying can result in penalties and interest charges from the IRS.
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