After you take the first steps in forming your business, it will be important to obtain federal and state tax IDs. The structure of your business will dictate which taxes the business needs to pay. Taxes can include income tax, self-employment tax, estimated tax, employment tax, and excise tax. Businesses of all forms other than partnerships are required to file annual income tax returns. Partnerships file an information return. Employers, ranging from sole proprietorships to corporations, need to pay employment taxes, including Social Security and Medicare taxes, federal unemployment tax, and federal income tax withholding.
Excise taxes must be paid by businesses that make or sell particular products, operate specific sorts of businesses, receive payments for certain services, and use certain kinds of products, facilities, and equipment. Federal excise taxes include environmental taxes, communications and air transportation taxes, manufacturer taxes, fuel taxes, and taxes on the first retail sale of tractors, trailers, and heavy trucks.
If you enter business as a sole proprietor, you may be able to use your Social Security number in order to file taxes because you file taxes for your business with your personal taxes. However, anyone who hires employees and needs to establish payroll (including LLCs and corporations) must obtain federal and state tax identification numbers in order to handle tax matters for the business. Some states require that you obtain the federal tax ID before obtaining the state tax ID.
Usually, a corporation must be registered with the Secretary of State's office in the state in which you are incorporating. Once the business is registered, it is possible to obtain a federal tax ID number.
The federal tax ID number is a unique nine-digit number that the Internal Revenue Service (IRS) will assign to a business entity operating in the United States for tax purposes under the Internal Revenue Code and other tax laws, depending on the type of structure being used.
The federal tax ID number is also called an employer identification number when a business hires employees and is using the number to pay employment taxes. On top of identifying the tax obligations of a business, the employer identification number must be used to open accounts, to get credit for the business, and possibly to get licenses or permits, depending on the state, the form of the business, and the nature of the business.
When it is used for identification instead of employment tax reporting, the federal tax ID number may be known as a Taxpayer Identification Number. In that situation, the numbers are only for tax administration, and they cannot be used for other purposes. The federal tax ID can be obtained by applying on the IRS website, and it can also be obtained by applying over the telephone.
Your business should also be registered with the state revenue department or similar tax agencies in the relevant state(s). For example, in California, the Franchise Tax Board administers corporate as well as personal income tax and franchise tax for the state, while the State Board of Equalization administers sales and use taxes, as well as fuel, alcohol, tobacco, and other special taxes.
It is possible to register with the appropriate state tax agencies online in most states. When you register, you will need to provide a business owner name, an address, a telephone number, and describe the business being conducted. It may be necessary to provide a federal tax ID. The state tax registration packet that you receive should include the state tax ID number. The state tax ID number is used only to report state taxes. Since they are not portable, state tax IDs usually are not requested by third parties. The state tax ID is used for state payroll returns.
