I am in the process of starting my own small business. I tried to open a bank account in the name of the business, but the bank refused because I didn’t have a federal tax identification number. What is that? Do I really need it, and if so, how do I get it?
If you are starting a small business in Texas, you will most likely want to get a federal tax identification number (tax ID), which is sometimes also referred to as an employer identification number (EIN). The tax ID is assigned by the IRS to your business, and it is used to identify your business to several federal agencies responsible for the regulation of business.
As a general rule, any business that has employees and/or offers products or services that are taxed in any way must get a tax ID. From a practical standpoint, the tax ID will allow you to do basic tasks that are essential for your business’ growth. For example, in addition to allowing you to open a bank account in the name of your business, a tax ID number is typically needed for business contracts, loan applications, filing tax returns, paying employees, and a host of related items.
Setting up a federal tax ID is not difficult and can normally be done without the assistance of an accountant or lawyer. To set up a federal tax ID number, you will need to fill out IRS Form SS-4. Contact your nearest IRS field office, or call the IRS business-and-specialty-tax hotline (800/829-4933) for assistance. For more information on whether your business needs a federal tax identification number and how to obtain it, take a look at the IRS Web site (www.irs.gov).
This article appears in February 9 • 2007.