A Limited Liability Corporation (LLC) is a business entity that provides the asset protection of a corporation and the tax structure of a partnership. To operate an investment LLC, you will need to register your LLC with the Internal Revenue Service (IRS) by applying for an Employer ID Number (EIN), also known as a Federal Tax Identification number. Registering for a Federal Tax ID number is one of the first steps necessary to ensure your investment LLC is operating in compliance with the law and that your investment LLC offers protection for your personal assets.
How It Works
The IRS considers a sole owner LLC as a disregarded entity. In this situation, taxes may be filed using the owner's Social Security number or the Federal Tax ID number of the LLC. In filing with a Social Security number, the owner is recognized as the company's employer. If using the EIN, the IRS considers the actual LLC to be the employer. While there is no law requiring you to have a tax ID number, it is advisable to apply for a Federal Tax ID number in order to separate the business dealings of your investment LLC from your personal assets.
Should You Get a Tax ID Number?
Until a business owner chooses to file for a tax ID number, his taxes will be held out through his personal taxes. The term disregarded entity means the LLC is inconsequential to any taxes paid. However, to minimize the personal liability it is important to establish a Federal Tax ID as this helps to validate the separation between you and your business entity.
Get a Federal Tax ID
Getting a tax ID number is an easy process. In the past, a business owner had to fill out form SS-4 and mail it to the IRS. However, the quickest way to gain a tax ID is by visiting the IRS website. Once the requested information is provided to the IRS, the tax ID number will be issued immediately.
Possible Changes
As of May 2011, regulations have been proposed by the federal government that may require every LLC to obtain a Federal Tax ID number in the future. If the new regulations are implemented, an investment LLC will be considered a separate entity from its owners for tax purposes. This means that owners will no longer be allowed to file taxes for the LLC using just their Social Security number.
