After many years of working as an employee, you are now probably thinking that it is time to be your own boss. These days, there are many kind of small business that can be carried out from the comfort of your own home. Anyone can start a small business especially online business. Young people, those who are house bound, and also home makers, especially are keen to earn some extra money while at the same time being home looking after their family.
If you are staying in the United States, you will have to obtain a federal tax id for sole proprietorship in order to start your small scale business. The federal tax id number is also known as the Employer id number (EIN), a nine-digit number issued by the Internal Revenue Services (IRS) to businesses for identification purposes.
Employers need the EIN or tax id number to pay their employees and also for filing their business annual tax returns. Once a business has obtained an EIN, it will not need to apply for a new one because EINs do not expire.
When we talk about taxes, there are 5 types of business taxes:
- The most common is the Income Tax which is imposed on individuals and businesses. In some countries, advance tax payments by tax payers are required after the tax payers have done their annual self-assessment of tax. Late tax payment will be subjected to a fine imposed on the tax payers.
- Another type of tax is the estimated tax on income derived from business earnings, self-employment, rent, dividends, interest, and other sources. Estimated taxes are usually paid quarterly.
- Another tax paid by self-employed individuals is the self-employment tax which is the Social Security and Medicare tax. This is usually withheld from an employee’s pay check.
- Next, an employer must withhold certain taxes from his or her employees’ pay checks. These employment taxes include the federal income tax, Social Security & Medicare taxes, and the federal unemployment tax act.
- Then there is the excise tax which is included in the price of the purchased products, e.g. gasoline. Excise tax is also taxed on activities e.g. on highway usage by trucks.
In order to obtain the tax id for your business, you will have to visit the IRS website. First, you will need to identify your business entity type and then fill out the application form via the IRS website. Online application for an EIN can be done through the IRS website. Application can also be done through fax, mail, telephone, or you can hand in the application in person to the IRS office. Once the EIN is assigned to you by the IRS, you can immediately go about getting things done to start your business such as opening a bank account for your business, applying for a business license in your state and also filing a tax return by mail. If you are unsure of your business entity type or how to go about filling the application form, you can engage a third party designee to help you.