Applying for a Tax Identification Number
Profit-turning businesses require a proper tax structure, thus, potential online business owners should apply for a federal tax identification number from the Internal Revenue Service. Without this number, a potential business owner can't open a bank account under his or her business name or apply for business credit. A tax ID, also called an employer identification number, can be obtained online or by phone, but the preferred method is online. Some business endeavors do not need to report earnings under an EIN. It depends on the tax structure, such as Class C Corporation, Limited Liability Corporation or Sole Proprietorship. Each structure taxes earnings at a different tax rate.
Using the Internal Revenue Service
According to the IRS website, business owners may use an online application in place of Form SS-4, which is usually used for requesting an EIN. The business owner completes a brief online questionnaire, and the EIN is issued. The number can be used immediately, but it will take two weeks before the EIN becomes a part of the IRS permanent record, which must occur before filing business taxes electronically.
Accessing the IRS Application
Access the application 6 a.m. to 12:30 a.m. EST during the weekdays, 6 a.m. to 9 p.m. EST Saturdays, and 7 p.m. to 12 a.m. EST Sundays. If the site is not functional, business owners should apply by phone: obtain an EIN immediately by calling the Business and Specialty Tax Line at (800) 829-4933. The hours of operation are 7:00 a.m. to 10:00 p.m. EST weekdays. An IRS worker takes the information and assigns the EIN. International applicants, call (215) 516-6999. Call (800) 829-1040 if you have a business in Guam, the Bahamas, the U.S. Virgin Islands or Puerto Rico.
Evaluating Business Plans
Evaluate your business plans to make sure you actually need a Tax ID. An activity qualifies as a business if it is carried on with the expectation of earning a profit. The Internal Revenue Service states that if an activity is carried on for profit and has made a profit during three of the last five years, including the current year, then the business is for profit and not a hobby. Losses from a hobby or nonprofit business may not be used to offset other income. An activity produces a loss when related expenses exceed income. Limits on not-for-profit losses applies to individual filers, partnerships, estates and S corporations. They do not apply to C corporations. Hobby deductions are claimed as itemized deductions on Schedule A, Form 1040.
Reference
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