When it comes to business, every state has its own unique requirements. If you’re starting a business in Delaware, one of the things you’ll need to obtain is a Delaware EIN number.
Getting an EIN may be optional, but there are compelling reasons to do so for your company. Understanding the basic ideas underlying EIN – whether it’s required for your business, how to apply, and the perks that come with it – can provide you with a significant advantage.
What to know about EIN number in Delaware?
An Employer Identification Number (EIN) is a nine-digit number issued by the Internal Revenue Service (IRS) to companies for tax purposes. It can be used to identify your firm in the same way that your Social Security Number (SSN) can be used to confirm your personal identification.
An EIN number allows you to register a business in Delaware, pay staff, obtain business credit, and retain your official status as a legal entity. You also need this number to file tax returns, open a business bank account, and acquire a business loan from a bank or financial institution.
You may be more familiar with other names of an EIN, which include:
- Tax ID number
- Business Tax ID
- Business Taxpayer identifying number
- Business Taxpayer ID number
- Business Tax ID number
- Federal Business Tax ID
EINs are issued by the federal government, while state tax ID numbers are issued by individual states. While an EIN is required for federal purposes such as filing federal taxes and applying for business licenses and permits, the state tax ID is used to file state taxes and to hire employees within the state.
Let’s say if your business is based in Delaware, you will need to obtain a Delaware state tax ID number in addition to your federal EIN.
Who is required to have a Delaware EIN number?
Many people believe that only large organizations need an EIN, but the requirements are actually based on certain conditions and activities. In other words, you may need an EIN even if you’re a freelancer or sole trader.
- For tax purposes, the following firms must get an EIN:
- Any type of business entity in Delaware with employees
- Delaware corporations and any entity taxed as a corporation
- Multi-member LLCs
A sole proprietorship must obtain an EIN if matching the following criteria:
- Hiring employees in Delaware (whether one or many) or planning to hire them
- Establishing self-employed retirement plans (i.e., Keogh or Solo 401(k) plan)
- Inheriting or thinking of buying an existing business and intend to run it as a sole proprietorship going forward
- Filing for bankruptcy
- Opening business bank account (in some banks)
EINs are also required by the IRS for trusts established by estate funds and for representatives who oversee an estate that operates a business after the owner’s death.
Unless you meet any of the standards listed above, you most likely don’t need a Delaware EIN number. Nonetheless, there are a number of compelling reasons why you should.
What are the reasons to have an EIN?
Although applying for an EIN isn’t on every entrepreneur’s to-do list, it can ease the process of starting a business and make life simpler down the road. Here are some key reasons why you should apply for an Employer Identification Number:
Apply for a business license
This varies by state, but many states including Delaware require an EIN before you can get a business license to run a company.
An EIN makes a business appear more professional to potential clients, which helps land and solidify clients’ relationships more easily.
For freelancers and independent contractors, having a business tax ID indicates that you have a genuine business, rather than something you conduct as a side gig, which is appealing to organizations looking to hire you.
Protect personal identity
EIN is an effective tool to help prevent identity theft and protect your personal identity. If you have an EIN, you don’t need to provide your Social Security number (SSN) to clients or vendors, which lowers the chances of thieves stealing and getting access to your personal details.
Get a business bank account
Some banks require an EIN and Delaware Operating Agreement to open a business bank account, along with the appropriate business license to show that you’re permitted to operate in your area. For instance, Bank of America requires proof of EIN from all types of businesses.
Business credit score
A good business credit score can help you get approved for loans and lines of credit much more easily than if you had no credit score at all. This is because it shows lenders that you are a responsible Business owner who is likely to repay your debts on time.
Scale up operations
By providing a unique identifier that can be used to track and manage business activities. EIN also allows businesses to apply for tax exemptions and other benefits that can help them save money and grow their operations.
Should you get an EIN before or after incorporation?
Before requesting an employment identification number from the IRS, your company must be incorporated. Because the name of the applicable business entity must be entered precisely as it appears on the incorporating paperwork, so your company’s precise legal name if you incorporate it before submitting an EIN application. In addition, the IRS will ask the date that company was created when you file for an Employer Identification Number with them.
You can get an EIN before incorporating a business, but that number is only valid to represent your current business which is a sole proprietorship. If you want to scale up to an LLC/corporation later on, you’d have to get a new one.
The majority of business owners often incorporate their company or create their LLC at the state level before applying for an EIN. This is a result of the frequent validation of federal applications against state databases. Owners will therefore be rejected if they request for an EIN without correctly completing their state filing.
How to get an EIN in Delaware?
Information needed to get an EIN
In order to file for an EIN, you must have certain information on hand, which includes:
- Name of the responsible party
- Social Security Number, Individual Taxpayer Identification Number, or preexisting EIN of the responsible party
- Business’s name and mailing address
- The type of business structure (i.e. corporation, partnership, LLC, trust, estate, etc.)
- The reason to apply for an EIN
- Closing month of your business’s fiscal year
- The expected number of employees on payroll in the next 12 months
- The date you begin paying salary
- The principal business activity you are engaged in. (e.g., retail, food & beverage, logistics) and specific activities of your business (e.g., selling organic food, computer sales, package transfer, and so on)
Note: Responsible party means the persons who ultimately own or control the entity or exercise ultimate effective control over the entity (i.e., business owners, corporate officer, a partner, executor, trustee, etc.)
Process to apply for an EIN
The process to apply for an EIN is fairly simple, but make sure you incorporate your business prior to requesting an EIN. For example, if you plan to do business as a corporation in Delaware, form your corporation before applying for an EIN.
You can choose to apply online, by fax, mail, or you can use an independent service to complete the process for you.
To apply online, fill out and submit the SS-4 form on the IRS website and wait for a confirmation letter upon submitting your application.
To apply via fax or mail, download and print the SS-4 form from the IRS website. Once you’ve completed the form, fax it to the number provided or mail it to the address listed. Include a copy of your Articles of Incorporation if you’re applying for a corporation.
If you’re using an independent service, provide them with the required information and sign an authorization form giving them permission to act on your behalf.
Note: You should receive your Delaware EIN Number within 4 business days if you apply online or by fax, and about 2 weeks if you apply by mail.
Once you have your EIN, be sure to keep it in a safe place as you’ll need it for filing taxes and other important business matters.
Reasons your EIN application might be rejected
In most cases, the IRS will approve your application for an EIN, but there are some instances where you might find your EIN application denied. Some common reasons why your EIN application may fail include:
- Invalid Social Security Number
- Missing information or typographical errors on your application (e.g., listing a different physical address than that of your company or mispronounced name)
- You already have an EIN (e.g., if you received EIN as a sole trader and recently changed to an LLC, do not apply for a new one. Instead, fill out an application to find your existing EIN)
Make sure you run through this checklist to ensure a successful application:
- Gather the required information before starting the application process
- Incorporate your business in Delaware, if you haven’t already
- Choose the method you’ll use to apply for your Delaware EIN number (online, fax, mail, or independent service)
- If using an independent service, authorize them to act on your behalf
- Wait for your confirmation letter from the IRS
If you have any questions or concerns about your EIN application, don’t hesitate to reach out to us via email@example.com or chat with our friendly consultant for assistance.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
- What to know about EIN number in Delaware?
- Who is required to have a Delaware EIN number?
- What are the reasons to have an EIN?
- Should you get an EIN before or after incorporation?
- How to get an EIN in Delaware?
- Reasons your EIN application might be rejected
- Key takeaways
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