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THE 4-1-1 ON TAX ID NUMBERS

411-Tax-id.pngWritten by AgChoice Business Management Services Team


An Employer Identification Number (EIN) versus a Social Security Number (SSN): which is safer to use for your business, and what name goes with what number? Our clients occasionally pose these questions, and the answers may require clarification from your accountant at the end of the year when they are helping you issue 1099 forms.

While businesses structured as partnerships, LLCs, etc. get an EIN number at inception, self-employed business owners have the option of using either their SSN or an EIN. You do not need employees to obtain an EIN number, and being able to provide an EIN lessens your SSN’s exposure. Consider how often you provide a tax ID number to vendors for sales tax exemption or when issuing 1099 forms. As a best practice for identity protection, you should reduce how often your SSN is used.

It is not a hard or lengthy process to obtain an EIN number. If you are interested, simply reach out to your accountant or local Yankee Farm Credit Farm Financial representative.
 

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Let’s talk briefly on the Form W-9 – Request for Taxpayer Identification Number and Certification. Businesses often use this form to have the most up to date name, address and tax ID for their customers. You may have received one of these forms to complete for vendors with whom you work. Similarly, you can use this form to request information from your service providers, landlords, etc. to whom you must provide 1099s.
Using this form to obtain information should be a best practice over requesting information over the phone or other means. It is always best to obtain this information prior to paying the recipient versus tracking down information at year-end when it is time to issue the 1099 forms. Your accountant can provide you with a supply of these forms if needed.

One last tidbit that is also a very important detail to remember: both SSNs and EINs are nine digits. The format of a SSN is 123-45-6789, while an EIN is 12-3456789. If you are issuing a 1099 under a SSN, the name that accompanies the number has to be the individual’s name.

For example, if you need to issue a 1099 to Smith Welding and they gave you a SSN, you have to indicate the individual first: John S. Smith. Here is how you can issue: just “John S. Smith,” or “John S. Smith DBA Smith Welding.” DBA stands for “doing business as.”

EINs are a bit trickier as they could be issued in an individual’s or business’s name. Having a W-9 form completed is how you know you are issuing the 1099 correctly. Understanding the reporting of these tax ID numbers will help eliminate IRS notices for filing errors. 
 
 
Every step taken in tax planning is moving you off the path to a tax problem and onto the path for a solution. We offer a wide range of record keeping and tax planning services that you can take advantage of at any time. If you are looking for assistance with your business, contact us, we would be happy to work with you.
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This article first appeared in, The Hitching Post. An agricultural newsletter published by Farm Credit association, AgChoice.

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