When you open a business, you can operate it under your own name, or incorporate and use a corporate name. You also can assign your business a fictitious or doing business as name, often abbreviated as a DBA. Whether you employ a DBA has no effect on whether your business needs an employer identification number from the IRS.
A sole proprietor or partnership can use the owner's real name instead of a DBA — Fred Smith Plumbing, for instance. Using any other name, such as Perfect Plumbing, requires you to register the name as a DBA. Usually you do this at the county level, but some state governments require state DBA registration as well.
If you use just your first name instead of your full name, you have to register. Fred Smith Plumbing is a real name, Fred's Plumbing is fictitious.
A corporation has to register a business name with the state when it files articles of incorporation. That becomes the company's real name. A corporation also can register a DBA if it chooses. A common reason is that the company is opening a new business and wants an appropriate DBA. For example, Perfect Plumbing Inc. might use Perfect Plumbing Supplies as a DBA if it decides to expand its operations and sell supplies and tools.
Who Needs an EIN?
The IRS uses an employer identification number to track tax records for businesses, just as it uses Social Security numbers for individuals. If your business is a sole proprietorship with no employees, your Social Security number may be all you need. The IRS says you need an EIN if:
- You have employees.
- Your business is a corporation or a partnership
- You withhold taxes on income, other than wages, paid to a non-resident alien.
- You file an employment, excise, or alcohol, tobacco and firearms tax return.
- You have a Keogh plan.
In addition, some organizations such as estates and most trusts, need an EIN.
If you're required to have an EIN you can apply online, by fax or by mail. You will need a taxpayer identification number — generally your Social Security number — as well as the business name and address. If you do have a DBA, you'll need to list it. You'll also have to provide some business information, such as whether you have employees. If you're mailing or faxing the EIN request, use Form SS-4.
Benefits of EINs
Even if you don't need an EIN, you can apply for one. There are some advantages to using an EIN. For example, if you provide your business EIN to clients for record-keeping and payments, that protects your Social Security number. Some banks may insist on an EIN before they'll open an account for your business.