Module 4: EIN and Taxes

Getting an EIN from IRS.gov Step by Step

An EIN (Employer Identification Number) is your business's Social Security number — a nine-digit federal tax ID the IRS issues for free. You need one to open a business bank account, hire employees, and file business tax returns. Even many single-owner LLCs with no employees get one, because it lets you put the EIN (not your personal SSN) on W-9s and invoices.

• The EIN is free — any site charging a fee for one is selling you a free form.
• One EIN per responsible party per day; apply only when you're ready, since the name and details should match your filed LLC.
• Apply at IRS.gov, weekdays 7 a.m.–10 p.m. Eastern, and save the confirmation letter.

How LLCs Are Taxed

Here's the part that confuses everyone: forming an LLC doesn't pick your tax treatment — the IRS applies default rules based on ownership, and you can elect something different later. A single-member LLC is by default a disregarded entity: the IRS ignores the LLC for tax purposes and you report business income and expenses on Schedule C of your personal return. You pay income tax plus self-employment tax (Social Security and Medicare, currently 15.3% on net earnings up to the annual cap) on the profit.

A multi-member LLC is by default taxed as a partnership: the LLC files an informational return (Form 1065) and each member gets a K-1 showing their share of profit, which they report on their personal returns. Again, self-employment tax generally applies to active members' shares. The third option is the S-corp election (Form 2553): the owner becomes an employee, takes a "reasonable salary" subject to payroll taxes, and remaining profit distributions escape self-employment tax. That election usually starts making sense around $60,000–$80,000 in annual profit — below that, the extra payroll and accounting costs eat the savings.

• Default single-member: disregarded entity — Schedule C, self-employment tax on profit.
• Default multi-member: partnership — Form 1065 plus K-1s.
• S-corp election: salary + distributions — worth modeling once profit is consistently above roughly $60k–$80k/year.

Opening a Business Bank Account

A separate business bank account isn't just good hygiene — it's load-bearing for your liability wall. Courts look at whether you treated the LLC as truly separate, and commingling funds is the fastest way to lose that argument. Open the account as soon as the EIN is issued; most banks want to see your filed Articles of Organization, your EIN confirmation letter, your operating agreement, and a photo ID.

Walk in (or apply online) with the LLC's legal name exactly as filed — the account title should read "Your Business LLC," not your personal name. Ask specifically for a business checking account; many banks offer free or low-fee small-business checking with no minimum balance. Get a debit card in the LLC's name and use it for every business expense, no exceptions. If you need to put personal money into the business, deposit it as a documented owner contribution; if you take money out, it's an owner draw — both get recorded in your books (Module 6 shows you the simple spreadsheet).

• Bring: filed Articles, EIN letter, operating agreement, photo ID.
• Account titled in the LLC's exact legal name; debit card in the LLC's name.
• Every business dollar in and out goes through this account — personal money moves only as documented contributions or draws.

One more move worth making on day one: a basic business credit card in the LLC's name. It builds business credit history separate from your personal score and keeps expenses cleanly separated. Just remember the personal guarantee most issuers require — that's a place where you are personally on the hook, LLC or not.