Should You Register for Self-Employment Tax or Get a Tax ID Number? – Shamsher Khan

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Should You Register for Self-Employment Tax or Get a Tax ID Number?

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If you are self-employed and have a business under a sole proprietorship business entity, then you will be required to file an annual return. At the same time, you need to pay every quarterly tax. Individuals that have self-employment in the United States are normally needed to pay their income tax. At the same time, self-employed individuals need to pay their self-employment tax. Due to this reason, you need to get a Tax ID Number.

Usually, individuals with self-employment will need an SSN (Social Security Number) to pay off their taxes. However, if self-employed individuals plan to open a distinctive account, or they plan to invest in the Keogh Retirement Plan, then it is essential to get a State ID Number. Hence, Legal Founders has provided all the information below regarding why you should register for Self-Employment tax or get a Tax ID Number.

What are Self-Employment Individuals?

The definition of a self-employed individual is that it is someone that doesn’t work under any individual (employer). Or any company that pays them any particular wage or salary. The second name for self-employed individuals is independent contractors. Also, individuals with self-employment earn through conducting business activities with one or several companies.

Normally, the company or the employer which has contact with individuals that are in self-employment contract, the company does not have to file tax for self-employed individuals. Therefore, self-employed individuals have to file their own returns.

When filing taxes, self-employed people use either their EIN or Social Security Number. According to IRS (Internal Revenue Service), someone is only considered self-employed if they are:

  • You are continuing trade or business as a self-employed contractor, or you have a sole proprietor business entity.
  • You are a partnership member that is conducting a trade or business.
  • You are in the business or trading activities for yourself and in this including the part-time business at the same time.

Who are Self-Employment Individuals?

Self-Employment individuals are people that operate within a wide range around the globe. Moreover, within various industries, they contribute to the economy in their respective countries. There can be various examples of self-employment individuals, such as:

  • Freelancers
  • Individuals operating their home-based companies
  • Sole proprietorships
  • Single-Member LLC.

The requirement for self-employment for EIN all depends on various factors. Like, the kind of work or business, opening their business bank account, etc.

What Does an EIN Play a Role for Self-Employment in Sole Proprietorship?

A sole proprietorship business entity is one of the simplest and most common business forms around the world. This entity type is owned and run by a single individual, and they are often recognized as the:

  • Individual Entrepreneurship
  • Proprietorship
  • Sole Trader.

This is a famous business form the reason that this is easy to set up and formation cost is minimal. Ever since, the sole proprietorship business entity and the owner have been completely inseparable. Then their taxation is totally based on the income they earn. This results in filing their tax returns as a sole proprietorship. They will need to first get their tax ID numbers as self-employment individuals.

Do I Require the EIN for Sole Proprietorship as a Self-Employment? 

Getting your business as Self-Employment means a Sole Proprietorship. It is a daunting task to manage your business and, at the same time, file tax returns. It depends on the business structure, where you have to make sure the quarterly estimated tax payments. By utilizing the SE-1040, there is an annual return by filing the Schedule SE (Form 1040).

Obviously, you are self-employed, you have to file these taxes by using the SSN and also with your EIN. A sole proprietorship business entity needs EIN in some cases, like:

Future Hiring of Employees.

You probably started the business as a self-employed professional, but as your sales and income grow, you’ll need to hire more people to help you. Soon, in the not-too-distant future, you will need an EIN in order to hire employees legally. You can get an EIN, which is a tax ID for self-employed people, ahead of time to save time and work in the long run. “Employer Identification Number” is the name for this tax number.

Minimum Specific Risk.

The SSN is a nine-digit number provided to each person through which they pay their taxes. Recently, more and more fake tax returns are getting filled with stolen Social Security numbers. The best way to lower the chance that your identity gets stolen is to keep your Social Security number a secret. This could be because it’s easy for thieves to use the money they get back to do something else. If you get an EIN for self-employment people, like an employer identification number, your Social Security number will be safe. The Tax ID number has used to pay off their taxes.

Financial Instruments.

You will need to open a personal bank account to keep your business money separate from your money. However, you still have access to both sets of money. To open a bank account for your business, you need the Employer Identification Number (EIN) of your company (EIN). With the help of this tax identification number, lending and credit agencies can keep track of a business’s credit history. Aside from the tax benefits, having an EIN can also help you get certain types of business loans. This is important for anyone who works for themselves and is self-employed.

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About the Author Shamsher

Live Instructor-Led online digital marketing trainer, a consultant, and an affiliate marketer with over 8+ years of experience View Course Details if you want to grow your business online or want to learn digital marketing online from anywhere.

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