transition business to actual business entity - EIN

[sillychair]

I have a very traditional ecommerse business going. I started it with a partner and she has since stopped participating in the business. The merchant account / bank has her social security number registered with the account, however. I'd like to remove this, so she doesn't get the tax burden since I'm now taking all the revenue. The one wrinkle is that I cannot use my social security number. I have two main questions:

(1) There is an option to put in an EIN with my bank which I gather is just a social security number for a business entity. Should I just get one of those? What is the easiest, cheapest way to get one of these numbers? Can I get one with just a sole proprietorship? I had an S-corp a few years ago and have to pay the state 900 bucks or so a year. I'm currently have a profit of $1000 after working for 3 months, so you can see that I don't want to really spend anything. I'd be very happy with a sole proprietorship and file a Schedule C at the end of the year if that works. If this is what I should do, where should I get an EIN? federal-ein-application.com? That looks pretty straightforward.

(2) What association does an EIN have to a person. I presume the EIN application will require my SS#. Is this connection something that is publicly available? As I said above, I'm not really in good graces with my bank, personally, which is why we used my partner's info originally. If I get an EIN for myself, and provide it to my bank, I *CANNOT* have my bank be able to track it to me (by SS# or name). Is this something that the bank could reference with the government and trace it back to me if they were so inclined?

Thanks in advance for your time! I appreciate it!

[vangogh]

Welcome to the forum sillychair.

An EIN is an employer identification number. It's easy to get online from the irs.gov site (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-%28EIN%29-Online). The link takes you to a page with some information and at the bottom is another link to the application.

It's been so long since I got mine, I forget all the questions that were asked. There won't be a public connection between your EIN and your SS#. The EIN will be specific to you since you're going to be a sole proprietor, but giving someone your EIN doesn't give them access to your SS#. In fact one nice benefit of having an EIN is not having to give out your SS# in some cases.

Having said that I'm not sure whether or not a bank will require a SS# if your a sole proprietor of a business. I imagine they want your social, but the EIN may be enough. If the EIN alone won't work, you might have to incorporate the business.

[sillychair]

Thank you for your response vangogh. It was actually the thread here (http://www.small-business-forum.net/accounting-taxes/3394-ein-sole-proprietor.html) that I first found when I got onto this site.

You answered all of my questions, but I have two follow ups. In my day job, my employer has my SS#. So at the end of the year, my employer gives info to the IRS about how much they paid me. And my return has to match that number. If taxes aren't paid for a given SS#, it's pretty clear who to go after. I totally understand this. How does it work for EIN? The bank would report the revenue to the IRS about the revenue that that account received. What happens if that isn't paid? Would the IRS just look up the SS# of that registering EIN and go after that person? How does an EIN connect to an actual person for tax purposes?

You mention that I might have to incorporate. Can you, briefly, provide expand on that. What do I get if I incorporate, that I wouldn't have with just a sole proprietorship? I presume it's more of a hassle to do this as well, right?

Thanks!

[gregfallon1]

I don't know of any merchant processors that will NOT request the owner's SSN. I assume you need the bank to process CC payments? Are you fine with getting the 1099-K?

[Freelancier]

The merchant banks want your personal SSN because they consider what they're doing "extending you credit personally".

[billbenson]

Many companies placing orders will want your SS # to place an order. Or at least they frequently want mine as a sole proprietor. Some are happy with just the EIN.

I know your question was about your bank. This also may differ if you are a LLC or Corp.

[tallen]

Even if it is just a basic business checking account, and even if your business is incorporated, the bank will still probably want your SSN as the authorized signer on the account.

Have you considered moving your business account to a different bank?

[vangogh]

How does it work for EIN? The bank would report the revenue to the IRS about the revenue that that account received.

Sorry I didn't see your post until now. My bad.

The bank doesn't report your revenue. You'll report it on your tax forms. The bank is holding your money and using it to make themselves more money, but they don't send information to the IRS about how much money you're making. There are additional forms for you to fill out that will calculate how much taxable income you made from your business. Assuming you'll be a sole proprietor with your partner leaving, you'll be filling out a Schedule C on which you'll report revenue and expenses.You'll use the form to calculate your taxable income which you'll report on the 1040.


You mention that I might have to incorporate.

You don't have to incorporate, but if you really want to avoid giving the bank a SS# you could incorporate the business. Then the corporation opens a bank account. The corporation isn't an individual and doesn't have a SS#. That's all I mean. It definitely is more work to set and manage a corporation.

[tallen]

The bank doesn't report your revenue. You'll report it on your tax forms. The bank is holding your money and using it to make themselves more money, but they don't send information to the IRS about how much money you're making.

The bank does report how much interest has been earned on the account, using form 1099-INT.

[vangogh]

What banks still pay interest? :)

Good point about the interest. Still not the same as reporting revenue. Depending on how quickly money comes in and goes out you can bring in a lot of revenue and still not have much in the way of interest. But still it is something the bank reports.