There are various cases when small businesses should apply for a new tax ID number. Employer Identification Numbers, or EINs, are essential to define your business identity. As a business owner, it is likely that you already have an employer identification number (EIN). However, there are some instances when you will need to apply for a new one. Having an up-to-date tax ID number is essential for your business’s success. Without an updated EIN number, you risk facing fines, penalties, or operational restrictions. By obtaining a tax ID number, you can remain free of any small business compliance issues. Read on to learn about 5 cases when your small business should apply for a new tax ID number.
Change In Business Structure
If there is a change in your business’s structure, you should apply for a new tax ID number. Your business structure can fit into one of three categories. These include sole proprietorships, partnerships, and corporations. Any form of switching between these categories requires you to apply for a new EIN. While organizational structure changes require a new EIN number, you likely do not need to obtain a new number for small changes like altering your business name or address. If you decide to change your business structure, keep in mind that you will also need a new tax ID number.
Change In Ownership
A change in a business’s ownership requires an application for a new EIN. Changes in ownership can occur in a variety of ways. For example, you can buy or inherit another business. Since you are a new owner, you will need a new tax ID number. You additionally need to apply for a new tax ID number if you dissolve your current business and start a new one. It is important to understand that an EIN is specific to both the business owner and the company. Therefore, tax ID numbers cannot be transferred between people or businesses. If there are any changes in ownership in your company, be sure to apply for a new tax ID number.
Sole Proprietorship Files For Bankruptcy
If a sole proprietorship files for bankruptcy, they must apply for a new tax ID number if they do not already have one. If you are a sole proprietor, you are not required to have an EIN for your business. However, an EIN is necessary for bankruptcy proceedings. Knowing if you need a new tax ID number allows you to be organized and prepared for bankruptcy proceedings. When filing for bankruptcy, it is important for sole proprietors to apply for a new tax ID number.
Death of Owner
To keep a small business running after the owner’s death, the new owner will need a new tax ID number. You may encounter this situation if you inherit a business. Unlike corporations, most small businesses dissolve upon the owner’s death. Continuing a small business after the owner’s death requires applying for a new tax ID number. You cannot continue using the old EIN, because tax ID numbers are not transferable between people. Even if the business operations remain the same, you will need a new EIN. In the event of a business owner’s death, the new owner will need to apply for a new tax ID number.
Form An LLC
When forming an LLC, you must apply for a new tax ID number. Incorporation is not a term often used to describe the formation of an LLC. It usually describes a business becoming a corporation. However, the IRS views forming an LLC as incorporating. As discussed earlier, any businesses that incorporate must also apply for a new tax ID number. Forming an LLC is a special case of change in structure. For this reason, you must apply for a new EIN if you choose to form an LLC.
Understanding these 5 cases will help you know when to apply for a new tax ID number. If a business changes its structure, it will need a new EIN. If a business changes ownership, it will need a new EIN. This also applies in the event that a business owner passes away. Additionally, sole proprietorships filing for bankruptcy must get a new tax ID number. Lastly, businesses that form an LLC must also get a new tax ID number. By keeping these criteria in mind, you will know when to apply for a new tax ID number.