LLC

Business Tax ID Number – FEIN and EIN Explained

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There is an unfortunate amount of confusion surrounding the concept of the Federal Tax Identification Number. It is ironic, because the whole Tax ID, FEIN, and EIN thing is actually very simple, mostly because they are generally all the same thing. However, it isn’t surprising that this concept confused many personal finance students because when it comes to things like laws and taxes, tiny variations in terms usually mean very different things. What is a Tax ID Number? Tax ID Number, or Tax Identification Number (TID), and the like, all refer to the same thing. When taxes are filed, whether they are personal income taxes, or business income taxes, there must be a unique identifier used on the tax return. Likewise, if income is reported, that income must be reported to the IRS with a unique number identifying who it was paid to. In the case of Federal Income Taxes, the tax ID number is a Social Security Number. However, businesses do not have SSN, so they need a different unique number to use for identification purposes on tax documents. FEIN stands for Federal Employer Identification Number. It’s “brother” is the EIN which stands for Employer Identification Number. What Is …

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More Tax Deductions for Small Business Owners and Sole-Proprietorships

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A great tax saving strategy, particularly for higher-income taxpayers is to start a small business. Many expenses that are not deductible for regular Federal Income Taxes are deductible to a business. For example, the mileage deduction is not deductible for personal driving purposes, and mileage driving to work is also not deductible. However, mileage driven for business purposes is tax deductible. While starting a phony small business is not a good idea, no matter how big of tax savings can be achieved, there are many legitimate businesses that people can start. The key aspect of being legally considered a business for tax purposes is that there must be a profit motive to the activity. That profit motive must outweigh other reasons for engaging in the activity, otherwise, the enterprise could be considered a hobby instead of a business. Formally incorporate the business with the Secretary of State in your state. Set up a LLC, it makes a great business structure for single-owner small businesses and is typically cheap and easy to setup. Filling out an online form and paying a registration fee is usually all that is required. Then, get an Employee Identification Number, or EIN from the IRS. Unofficially …

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