The S-corp business structure provides your business with several advantages compared to a partnership or a sole proprietorship. Namely, this business structure allows you to reduce your self-employment tax, and because that tax is over 15%, electing to be taxed as an S-corp can potentially save you a lot of money.
At the same time, an S-corp also offers benefits over being a c-corp. The business structure and tax reporting requirements are less strenuous than they are for a c-corp. However, you can only have up to 100 shareholders with an S-corp. If you want to go above that number, you need to become a C-corp.
But of course, your S-corp needs an Employer Identification Number (EIN). This number is critical for almost all businesses, regardless of your structure. To help you out, this guide explains how to apply for an EIN for an S-corp.
How to Elect to Be Taxed as an S-Corp
To form an S-corp, you need to submit an application called Election by a Small Business Corporation. This form declares that you want your business to be taxed as an S-corp. It requires a range of details about your business, and one of those details is your EIN.
Ideally, you should obtain the EIN for your business before you elect to be taxed as an S-corp. Then, you can more easily fill out the election application. However, if necessary, you can do both at the same time. If you take this route, simply write “applied for EIN” in the blank that requests the EIN for your S-corp. Then, you can provide this information later.
Note that you must apply for the EIN before you make this election. You can’t elect to be taxed as an S-corp if you haven’t at least applied for the EIN.
How to Apply for Your S-Corp’s EIN
To apply for an EIN for your s-corp, you need basic details about your business such as its name and address. The EIN application requests your business’s legal name (aka the business name you put on your tax return). But it also requires your doing-business-as (DBA) name which is the name you put on your signs.
You will need to name a responsible person. This person should be one of the main shareholders or owners of your s-corp. They must be a person. In some cases, some of the owners of your s-corp may be business entities such as partnerships or other s-corps. You can’t list these entities as your responsible person. Make sure you have the tax ID number of the responsible person and their contact details.
Then, you need to note the type of business structure you have. The EIN application does not offer s-corp as an option. So, just choose “corporation”. If your S-corp is also a limited liability company (LLC), you will also need to note that and the state where you formed the LLC.
Even though you have an s-corp and not a c-corp, you will need to note details about your company. In particular, you need to note the state where you formed your corporation or the country if you are a foreign company. The S-corp election is a federal election so you should just note the state where you do business.
When applying for an EIN for your business, you also need to note why you are applying for an EIN, some details about your employees, and the nature of your business. The application makes this process fairly easy by presenting you with a list of common answers.
Regarding your s-corp’s employees, you need to note how many you have and if you anticipate owing more than $1000 in withholding tax. For the nature of your business, you just choose from a list of common industries.
Reasons Your S-corp Needs an EIN
Your s-corp will use an EIN for several different purposes. As indicated above, you need to note why your S-corp needs an EIN. The EIN application gives you the following options:
● Starting a new business.
● Hiring employees.
● Being compliant with withholding regulations.
● Banking purposes.
● Changing the type of organization.
● Purchasing an existing business.
● Creating a trust or pension plan.
When you apply for an EIN for an S-corp, you will typically choose starting a new business or changing the structure of your business. For instance, if you are electing to be taxed as an S-corp and previously you were a partnership, you will choose the option that says changing the structure of your business. If you’re launching a new business and want to be an s-corp from the word go, you should select starting a new business. Similarly, if you have purchased an existing business and need a unique EIN, you should select that option.
The other reasons will all come into play in the future. But they aren’t the exact reason that you’re applying for an EIN for your S-corp right now.
Where to Apply for Your S-Corp EIN
You can apply for an S-corp EIN online or through the mail. If you’re an international company, you may be able to apply over the phone. Applying for an EIN online is the best and fastest option.
To prepare, gather all of the details noted above. Then, sit down and get ready to complete your application. The online process can vary, but often, your s-corp can get an EIN the very same day that you apply.
Once you have your S-corp’s EIN, you can start using it right away. You will use this number on your S-corp election application as well as on your S-corp tax return. You will also use it on employee tax forms and for bank account documents. This is a critical number, and you can’t really do business without it. Luckily, there are companies that can help you obtain an EIN for your s-corp. They make the process as fast and easy as possible.