An Employer Identification Number (EIN) is issued by the IRS and acts like a Social Security Number—but for your business. It’s necessary for tasks such as opening a business bank account, hiring employees, and filing taxes. Even if you’re a sole proprietor, getting an EIN can help you separate your personal and business finances. It also builds credibility and ensures you’re set up correctly with the IRS. Startups planning to grow should apply for an EIN early. It’s free and can be requested online via the IRS website in just a few minutes.
Understanding ITIN and How It Differs from EIN
An Individual Taxpayer Identification Number (ITIN) is issued to individuals who aren’t eligible for a Social Security Number but still need to file U.S. taxes. It’s primarily for non-resident aliens, their spouses, and dependents. ITINs are used for personal tax reporting, not for business identification. On the other hand, an EIN is for business entities. If you’re confused about itin vs ein, remember this: the ITIN is for individuals; the EIN is for businesses. A startup founder who isn’t a U.S. citizen might need both—an ITIN to file taxes personally and an EIN for their company’s legal and tax obligations.
When Do Startups Need to File Business Taxes?
Startups must file taxes based on their business structure and earnings. Sole proprietors report business income on their personal tax return, while partnerships, LLCs, and corporations file separately. Deadlines vary: most businesses must file annual returns by March 15 or April 15. If your startup has employees or sells taxable goods/services, you may also need to file quarterly. Missing deadlines can result in penalties and interest. Even if your business didn’t earn income, a return may still be required. It’s crucial to keep good records and consult a tax advisor to understand your obligations from day one.
What Tax Forms Should Startups Be Aware Of?
Different forms apply to different business types. For sole proprietors, the Schedule C (Form 1040) is used to report income and expenses. Partnerships file Form 1065, while S Corporations use Form 1120-S. C Corporations file Form 1120. If you paid contractors, Form 1099-NEC is necessary. Employment taxes require forms like 941 or 940. These forms allow the IRS to track your business’s income, expenses, and employment-related taxes. Missing or incorrectly filling out these forms can lead to audits or fines. As your business grows, your reporting obligations may change, so stay informed and organized to avoid compliance issues.
How Foreign Founders Handle U.S. Business Taxes
Foreign founders of U.S.-based startups face unique challenges. They may need an ITIN for personal tax reporting and an EIN for their business. Even if they don’t reside in the U.S., they might be subject to U.S. taxes if they earn income through a U.S. business entity. Double taxation treaties between countries may help reduce tax burdens. It’s wise to work with an accountant familiar with international tax law. The right setup can protect the founder’s assets, maintain compliance, and optimize tax outcomes. Also, a U.S. business bank account often requires an EIN, so securing it early is essential.
EIN and ITIN Mistakes Startups Should Avoid
One common mistake is using an ITIN where an EIN is required, especially on business documents or tax forms. Another error is delaying the EIN application, which can prevent you from opening a business bank account or applying for licenses. Some founders fail to update EIN-related info after major business changes, like ownership or structure shifts. Failing to renew or verify ITINs before tax season is another issue. Be cautious when filling out forms—mistakes can trigger IRS delays or penalties. Always double-check numbers, names, and dates. Working with a professional can prevent these simple but costly errors.
Tips for Staying Compliant with Business Taxes
To stay compliant, set up a clear system for tracking income and expenses. Use accounting software or hire a professional to manage books and file taxes correctly. Know your tax deadlines—quarterly payments, employment taxes, and annual returns. Register for state and local taxes if required. Keep personal and business finances separate to avoid confusion. Regularly review your business structure and tax status, especially as your startup grows. Save receipts, invoices, and bank statements for at least seven years. Lastly, consult a tax advisor who understands startups. Proactive compliance avoids fines, supports growth, and keeps your business in good legal standing.
