Launching a business is an exciting time in any entrepreneur’s life. If you’re considering registering your company as an LLC, you probably have many questions regarding how to do it, such as whether you should obtain an EIN before or after you register.
The short answer is to wait. Here, we’ll explain a little more why you want to first register as an LLC before obtaining an EIN for your business.
Are an EIN and LLC the Same Thing?
No, an EIN and an LLC are not the same, although both are important acronyms to know. EIN stands for “employer identification number” and is a federal tax ID number. If you want to hire employees, open a business bank account, obtain a business loan, apply for certain business licenses, or file taxes separately for your business, you’ll need an EIN. If you use a federal EIN, you’ll also need a state tax identifier.
An LLC is a type of business structure that provides specific protections for the owner. Registering a business as an LLC offers many advantages, especially tax benefits. Other advantages you can enjoy include creating a separate legal entity from yourself, separation of personal and business assets, limited liability from legal action, and flexible management structure.
Do I Need an EIN for an LLC?
If you plan to operate as an LLC and have only yourself as an employee, you technically do not need an EIN. On the other hand, if you have just one employee, you’ll still need to obtain this tax ID. Even if you are operating your business alone, it’s still a good idea to apply for an EIN. This way, if you need to hire employees and initiate a payroll, you’re all set. An EIN is also beneficial because you can separate your business and personal tax returns.
Should you Get an EIN Before Registering my LLC?
While you certainly can apply for an EIN before you register your business, it is in your best interest to wait. The primary reason to delay pursuing an EIN is to be sure your state approves your LLC name. If you obtain an EIN and the state rejects your application, you’ll have an EIN connected with a business name you can’t use.
Interestingly enough, the Internal Revenue Service does not check to ascertain if your LLC is a registered entity, so it’s best first to ensure your name is legally acceptable and yours to use freely. You can conduct this search yourself or work with a company or attorney equipped to do this for you.
What Happens if I Apply for an EIN and My LLC Name is Rejected?
The most common reasons your LLC name might be rejected by the state is because the name you submitted is unavailable because a) it’s already in use or b) it’s too similar to an existing business name. If you find your company in a scenario where a state denies your LLC name, you’ll have to cancel your EIN and re-file your LLC with a new name you can use. Next, you’ll wait for your state’s approval. Lastly, now you should file for your EIN.
In most instances, you’ll want first to obtain your business name before you pursue your company’s tax ID.