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A taxpayer ID is a number issued to you by the federal government that identifies your business, like your social security number identifies you. It’s also called an EIN for “Employer Identification Number.” Some people also call it a TIN for “Taxpayer Identification Number.”
There are a number of reasons a business will need to have an EIN. The most important one is if that business has any employees, in which case payroll is handled with an EIN.
EIN / TINs are useful, and sometimes required, in both the US (IRS) and Canada (CRA).
In truth, only your accountant can tell you whether you NEED an EIN. Even if you don’t have any employees, there are advantages to having one that aren’t truly “official” or required, you may want to get one and use it whether you are advised to do so by your accountant or not.
Two advantages are:
Some of your clients, the ones who pay you over a certain amount of money per year, may ask you for your Tax ID number or your social security number so they can report on their income tax filings that they paid you. That may allow them to take your services off their taxes. You will not want to share your social security number, so you can give them your EIN. The government considers that to be perfectly acceptable.
If you decide to open a bank account in your business’s name, you’ll also want to use an EIN. And if you ever want to grow your business beyond just your own services, then you’ll need an EIN.
They are easy to obtain, and there is no cost to you to getting one. The IRS supplies an online form for you to use.
If you are in Canada, you can learn how to obtain your taxpayer number here.
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