Common EIN Mistakes and How to Avoid Them

Businesses of all sizes, whether small or large, must have an Employer Identification Number (EIN).

Obtaining this number before starting operations is crucial as it has various implications for your business’s legal status and financial obligations. 

However, there are many common mistakes entrepreneurs make when applying for or using their EIN, which can seriously affect their businesses.

In this blog, we will explore these pitfalls, discuss their impact on your operations, and provide tips on how to avoid them to ensure smooth sailing for your business endeavors.

Why It’s Crucial to Avoid EIN Mistakes

One of the most critical steps in starting a business is obtaining an EIN from the Internal Revenue Service (IRS). This unique nine-digit number serves as a business’s identification and is necessary for tax purposes, hiring employees, opening a business bank account, and more.

However, most new companies often make mistakes when applying for an EIN. Firstly, any errors in your EIN application can delay the processing time or even result in rejection by the IRS. 

This means that your business may only be able to operate legally once the issue is resolved. For new companies trying to establish themselves in a competitive market, delays caused by EIN mistakes can harm their success. It could lead to missed opportunities and potential revenue loss.

Moreover, any discrepancies between your EIN records and other documents, such as tax returns, employee wages, or payroll reports, can raise red flags with the IRS and result in penalties or audits.

These consequences waste valuable time and create unnecessary stress for you as a business owner.

Providing false information or misrepresenting facts on an EIN application can result in legal repercussions for you as a business owner.

The IRS takes these matters seriously and has strict penalties in place for those who try to manipulate their way around obtaining an EIN.

Therefore, businesses must avoid EIN mistakes to ensure smooth operations, maintain a good reputation, and comply with federal laws.

Consult a Certified Private Accountant (CPA) or legal specialist to ensure your business starts correctly.

Mistakes to Avoid While Applying for an EIN

Applying for an EIN may seem like a straightforward process, but some common things businesses need to correct can delay or even result in the rejection of their application. To ensure a smooth and successful process, here are some key mistakes to avoid when applying for an EIN:

1. Providing Incorrect Information

The first step in obtaining an EIN is filling out the application form (Form SS-4). It is crucial to provide accurate information on this form, as any discrepancies or errors can lead to delays or rejection of your application.

Ensure all names, addresses, and other details match exactly with what is stated on other legal documents.

If you are a non-US founder without a social security number (SSN) or physical address, you cannot use your Registered Agent’s address on your EIN application form. However, you can use a P.O. box (depending on the state) or avail a virtual mailbox services for your business.

2. Not Checking Eligibility

Not all businesses are eligible for an EIN. If you are unsure whether your business qualifies for one, it’s best to consult with a tax professional or contact the IRS directly before submitting your application.

3. Applying Under the Wrong Entity Type

One of the most common mistakes international businesses make in EIN is applying under the wrong entity type. Take time to understand your business structure and select the appropriate entity type on your application.

4. Using a Third-Party Service Designee

While many third-party service designee offer assistance in obtaining an EIN, who is the representative of your business and has a credible reputation in the eyes of the IRS. 

During the formation process, they act on behalf of you, and you act as a foreign business investor.

However, they often charge high fees and may not follow proper procedures when submitting your application on your behalf. 

Therefore, it’s always best to apply for an EIN through a reputed company like doola, which has vast experience in business formations.

5. Applying for Multiple EINs

It is important to note that each business should only have one EIN, as using multiple EINs can cause confusion and complications with the IRS.

If you need a new EIN, you must cancel your previous one and obtain a new number.

6. Not Ensuring Your Company Is Approved

You must ensure that your business is approved before applying for EIN. The approval process varies from state to state, but it will be approved/stamped Articles of Organization, Certificate of Formation, or Certificate of Organization. 

The IRS does not check whether the company was formed first before getting an EIN.

However, it’s best to register your LLC for obtaining an EIN, or else you need to resubmit the LLC filing forms and then apply for a new EIN if.

Avoiding these common mistakes while applying for an EIN can save time and ensure a smoother process.

With the correct partner like doola with a keen eye for detail, obtaining an EIN for your international business will be a hassle-free experience.

Common EIN Mistakes and Their Impact on Businesses

One of the most common EIN mistakes is using the wrong legal name of the business. This mistake may seem minor, but it can lead to complications in the future. The IRS matches this name with your business’s other information, such as tax returns and W-2 forms. 

If there is a discrepancy, it can result in delays or rejections of essential documents and payments. Additionally, using a name different from what is registered with your state can create confusion and damage your business’s credibility.

There’s also a misconception that single-member LLCs doesn’t need an EIN. However, a single-member LLC with employees or selling goods or services that are subject to excise tax must obtain an EIN. 

In addition to filing and paying taxes, there are other reasons why a single-member LLC may need its own EIN.

For example, your LLC may need an EIN to open a bank account, or the state where you have opened your LLC may require that you obtain an EIN.  

Awareness of common EIN mistakes and taking necessary precautions can save businesses from potential financial and reputational damages.

By avoiding these errors, you can ensure a smooth process when dealing with taxes and other important documents related to your business’s operations.

How to Avoid Common EIN Mistakes: Step-By-Step Guide

To ensure a smooth and successful process, businesses must be aware of common EIN mistakes and know how to avoid them.

This step-by-step guide will discuss the most common EIN mistakes and provide practical tips to avoid them.

Step 1: Determine Your Eligibility for an EIN

Not all businesses are eligible for an EIN. Sole proprietors without employees and certain types of trusts do not require an EIN.

If you fall under one of these categories, you should not apply for an EIN, as it will only result in unnecessary paperwork and potential confusion with the IRS.

Step 2: Gather Accurate Information

One of the most common errors when applying for an EIN is providing inaccurate information.

It is crucial to double-check all information before submitting your application, as incorrect details can cause delays or even lead to rejection.

Ensure you have entered all names and addresses correctly, including suffixes such as Jr., Sr., III, etc. Additionally, ensure that your business name and legal structure match the information on file with the IRS.

Step 3: Choose the Correct Application Method

There are two ways to apply for an EIN – online or by mail/fax. In most cases, applying online is the quickest and easiest option.

However, if you are a foreign entity, have complex ownership structures, or need a confirmation letter, then applying by mail/fax may be more suitable.

Step 4: Keep Your EIN Secure

Once you have successfully obtained your EIN, it is vital to keep it secure. This will help prevent potential identity theft or other fraudulent activities.

By following these steps and being aware of common mistakes when obtaining an EIN, you can avoid potential delays and consequences for your business.

Always double-check information before submitting your application and keep your EIN secure once it is obtained.

Tips for Maintaining an Accurate and Up-to-Date EIN Record

Maintaining an accurate and up-to-date EIN is crucial for any business. Your EIN serves as a unique identifier for your business and is used by the IRS to track tax information, file taxes, and communicate with your company.

Here are some helpful tips for ensuring that your EIN record is accurate and up-to-date:

1. Keep All Documentation Related to Your Ein Handy

This includes the original confirmation letter from the IRS and any subsequent letters or notices regarding your EIN.

These documents contain important information such as your EIN, the business’s legal name, and the responsible party’s name and social security number.

2. Notify the IRS of Any Changes in Business Ownership or Structure

If there are changes in ownership or structure of your business, it is essential to update this information with the IRS.

This can include changing from a sole proprietorship to a partnership or starting a limited liability company (LLC), adding or removing partners or shareholders, or changing the responsible party for tax purposes.

3. Update Your EIN If You Change the Legal Name of Your Business

If you change your company’s legal name due to a merger, acquisition, rebranding, or other reasons, you must update this information with the IRS.

Failure to do so may delay the processing of tax returns and notices sent to outdated addresses.

4.Inform the IRS if You Move Locations

If your business’s physical address changes, be sure to notify the IRS so that they have an updated address on file for correspondence purposes.

5. Review Form 941 Each Quarter

Employers must file Form 941 quarterly to report wages paid, federal income taxes withheld from employees’ paychecks, and employer share of social security and Medicare taxes.

Review this form carefully before submitting it each quarter to ensure that all information is accurate and up-to-date.

6. Keep Track of EINs for Subsidiary Companies

If your business has subsidiaries under a series LLC with separate EINs, keep track of these numbers and update them if there are any changes in ownership or structure.

7. Get Help from the Professionals

If you prefer a more hands-off approach, you can also avail yourself of doola’s EIN services to obtain and manage your EINs.

We provide services like online application assistance, tax consultation, and document preparation to ensure your EIN is obtained correctly and efficiently.

You can also consult our tax advisor or Certified Public Accountant (CPA), who are experts in handling all taxation matters and can provide tailored advice based on your business needs.

Secure Your Business with doola’s EIN Services

Since you now understand why getting your EIN right is so important, you may wonder how doola can help you. Let us tell you how!

Our team of experts will guide you through obtaining an EIN accurately and efficiently. Every business has unique needs, so we offer customized solutions tailored to your requirements.

By choosing our EIN services, you can rest assured that all necessary documents will be completed correctly and submitted promptly to the IRS. This ensures you receive your valid EIN without confusion or hassle.

Additionally, our digital bookkeeping solution automates record-keeping, helping maintain accurate and up-to-date records associated with your EIN. This not only simplifies tax filing but also helps streamline other business processes.

With doola, you can save time and effort and focus on growing your business with the peace of mind knowing your EIN is in good hands.