An EIN (Employer Identification Number), also known as a Federal Tax ID number is used to identify businesses, much the same as a Social Security number is used to identify individuals. You can get an EIN for your business for free from the Internal Revenue Service. There are some companies out there who do charge for helping you get an EIN, but it is a simple process you can do yourself, quickly, easily and even online. It takes just a few minutes.

You can operate your business legally and successfully without an EIN, particularly if you are a sole proprietor. You just use your Social Security number. Many business owners do this and it is fine to do so if it works for you.

But, there are several reasons you might want to have an EIN. Some banks ask for one when you apply for a business bank account. (Most will also accept your social security number, though, if you have another means of identifying yourself as the owner of the business, such as a local business license.)

Also, some people want to use an EIN for their business simply so that their personal social security number is not “out there”, subject to identity theft. That is a very valid concern these days. Many companies will ask you to fill out a W-9 or Taxpayer Identification form before they will pay your invoices, and this could potentially expose your social security number to identity thieves.

There are some instances where you do need an EIN, as it is required by the IRS. If you hire employees, operate in certain industries or organizations, have a Keogh plan or operate as a corporation or partnership, then you need an EIN. For more information or help in determining if you need an EIN, the IRS has a checklist to help you.

If you do need or want to get an EIN, there are several ways to get one. You can apply online, by mail, by fax or by calling a toll-free telephone number. You can find all this information here: How to Apply for an EIN.

If you are a sole proprietor, you only need (and can only get) one EIN, no matter how many “businesses” you run. For instance, you can write, sell things on eBay, host home parties as an independent contractor, and train hunting dogs all under the same EIN. Much the same as you can do all those things now with your one social security number, you can do them all under one EIN.

For more info on small business tax questions, I recommend:

Deduct It! Lower Your Small Business Taxes

And, to make it all easier,

Quicken 2008 Home & Business