FAQ

Do I Need a State Tax ID if I have an EIN?

Question – Do I need a state tax ID if I have an EIN?Our Answer – When starting a business there are lots of applications and numbers you may not be familiar with. Two numbers that are often mixed up are the state tax ID number and EIN.   As a new business owner, you’ll want to know what these different numbers are and what they are used for.  Here we will explain the difference between the state tax ID and EIN.What is a State Tax ID Number?Most businesses selling goods and certain services or will hire employees will need to get a state tax identification number.  In some states, every business will need to apply for one.  Check out guide for starting a business in your state to see if a state tax ID number is required for your business.   State tax ID numbers are issued by the Department of Revenue or similarly named agency in the state where the business is located.The purpose of a state tax ID number is for reporting taxes at the state level and are usually associated with sales taxes or income tax withholding for employees.  This number also allows a retailer to enroll or obtain a Resale Certificate, Sales Tax Permit or Seller’s Permit (all refer to the same thing) which allows for tax-exempt status.  Tax exemption allows a business to purchase goods that will be resold at retail.  When those goods are sold to the eventual customer, the retailer collects the sales tax.If the business has nexus in other states, which basically means having a physical presence, that business may need to also obtain state tax numbers in other states.  Nexus can come from having employees working in other states or products shipping from warehouses in other states.  This can include drop shipped products too but is dependent on the state and vendor.What is an EIN?An Employer Identification Number (EIN), also known as a Federal Employer Identification Number or FEIN, is a unique nine-digit number issued by the IRS (Internal Revenue Service).  An EIN is similar to a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) that identifies certain businesses.   Any small business that pays employees or is a partnership or corporation is required to obtain an EIN. LLCs that elect to be taxed as a partnership or corporation is also required to get an EIN.  EINs can be obtained from the IRS at no cost from the IRS website.  Also, here is more information about applying for an EIN.Not all business entities need an EIN.  A sole proprietor or single-member LLC with no employees can obtain an EIN but are not required to do so.  Instead, they can just use the owner’s Social Security Number.  In this instance, the EIN is more for tax purposes and won’t mean much until preparing year-end income tax returns.Companies will use the EIN when filing income tax withholdings and employment tax returns.  Banks will often require a new business to have an EIN before opening a business bank account.  In addition, the EIN is used when applying for loans or credit cards, applying for business licenses and to accept credit cards.Depending on the state your business is in, business entity, what you are selling and if you have employees you may need one, both or none of these numbers.  Check out our guide for starting a business for the requirement for each state. Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

Do I need a tax id number to sell online?

Question – I am starting a business selling handmade items at craft fairs and flea markets, in addition to online with Etsy.  Can you tell me if I need a tax id number or EIN?Our Answer – First off, people sometimes confuse a tax id number (sometimes referred to as a taxpayer identification number) and EIN (known as an Employer Identification Number or Federal Employer Identification Number) as being the same thing, when in fact they are not. The tax id number refers typically to the registration with the state’s tax office, usually named the Department of Revenue or something similar.  The tax id number (sometimes called a resale certificate or sales tax permit) is usually needed for a business that collects sales tax or has employees, however, some states require all businesses to register for one. Sales tax is typically collected for tangible personal property (such as crafts at craft fairs) and some services.  To check for each state’s requirements check out the guide for starting a business for your state.  There is usually no cost to get a resale license / sales tax id in most statesWhen selling products online you may have some additional sales tax liability to consider.  Currently, in most states, the business is responsible in collecting sales taxes from customers living in the state the products were shipped.  This is called having sales tax nexus and can also require a merchant that ships product through multiple warehouses (such as through the Fulfillment by Amazon program or drop shipped products) to collect sales taxes from customers living in the same state as the warehouse.  In the past, out-of-state customers were not required to be charged sales tax in many states, but this is changing after the recent ruling that states can require merchants to collect sales tax from out-of-state customers. Be sure to check with your state taxing body for current information.  The first item is called sales tax nexus. Next, the EIN is a unique number (much like a social security number for an individual) that is used to identify a business. This number is assigned through the IRS (Internal Revenue Service).  An EIN is required for some business entities including the partnership, corporation and some LLCs.  The EIN is also needed for sole proprietorships and some LLCs (Limited Liability Company).  A sole proprietorship (or single-member LLC) would simply use the social security number of the owner.  There is no cost to get an EIN and can be done from the IRS website.  Here is more information about applying for an EIN.Depending on the state, a business may need one, both or none of these numbers.  In this instance, if you form a sole proprietorship or single-member LLC business entity with no employees, you won’t need an EIN but if you are in a state that charges sales tax or a state that requires one, you will need to register for a tax id number. If you have more questions check out our article about the difference between state tax numbers and EINs.  Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

If I file for an LLC as a single member, can I still acquire an EIN number?

Question – If I file for an LLC as a single member, can I still acquire an EIN number?Our Response – In some cases a single-member LLC (or a sole proprietorship) will be required to register for an EIN. An EIN is not needed for a sole proprietorship or single-member LLC electing to be taxed like a sole proprietorship AND has no employees. An LLC that elects to be taxed as a sole proprietorship AND has employees OR a single-member LLC the elects to be taxed as a corporation will need an EIN.Applying for an EIN takes about 5 minutes.  See more information on how to apply for an EIN.   Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

How do we pick the right entity and not get screwed with our taxes?

Question – Hi we are at a stand still .. We are waiting for our cpa to tell us weather to put the business under an LLC or an entity ( for tax purposes ).I have a dog grooming job full time and my husband is a fire fighter full time so we just wanted to make sure we picked the right one and wouldn’t get screwed with our taxes . Not sure if you could be any help to us .. it is a dog hiking business, we will take dogs on 2 -3 mi hikes in the woods about 3 to 4 rounds a day of different dogs. It will be just me and my husband working no other employees.Our Response – This can be an interesting question to answer since everyone’s finances are different.  I’m not a CPA but do have a few points to share. – The entity may have a small impact on your taxes, but what will matter more is how you elect it to be taxed.  The LLC is the most flexible as you can elect to be taxed as a sole proprietorship, partnership, C corporation or S corporation.  (The corporation you can choose to be taxed as a C or S corp).  – Many people will choose to have their LLC taxed like an S corp since it is not double taxed like a C corp.  So this makes the LLC whats called a disregarded entity, which means the entity isn’t taxed as the taxes pass on to the owners.  This part is kind of similar to how a sole proprietorship or partnership is taxed.  What makes the S corp election especially interesting is that any profits that are made above whats considered a “normal salary”, those profits can be distributed as dividends which keeps them from being taxed the various payroll taxes of 15.3%.  A “normal salary” is determined by the IRS and is going to vary based on industry, what similar people would make doing the same job, etc. Regardless, saving 15.3% on some of your profits can be a great way to legally shield your money from the tax man.  – Whats also interesting about the LLC is the ability to change your tax status.  There are some stipulations on how often you can do it, but this gives you flexibility as the business changes. – With that said, one of the downsides of an LLC taxed as a corp (either one) is that you have to pay yourself a salary and with that comes additional paperwork, payroll taxes, workmans’ compensation, etc.  This could be farmed out to a payroll company or you could learn yourself, but is time you could be better spent on the business and with the limited time you have left over, you need to use it as efficiently as possible.   – All that said, from what it sounds like is that your business is going to be part-time in the beginning while you keep your full-time jobs and building the business.  In reality, it’s likely that none of the entities are going to save you much, if any money in taxes.  The LLC is going to provide you with asset protection, so if something happens in the business, your personal assets are going to be safer than if you were to file as a sole proprietorship.  You may want to consider starting out as an LLC that elects to be taxed as a sole proprietorship while it is getting off the ground.  Once the business can pay you more than the “normal salary” and you can take dividends you can change the election for s corp status.  This way, you don’t have to worry about all of the extra paperwork and complexity.  Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

What is the registration/filing fee when applying for a Federal EIN with the IRS?

Question – What is the registration/filing fee cost when applying for a FEIN with the IRS?Answer – Even though there are several companies that will charge you for an EIN, there is actually no cost to file for an EIN with the Internal Revenue Service (IRS). It’s pretty easy to do. Just apply for an EIN on the IRS site, between the hours of 7 am – 10 pm EST, Monday – Friday. It takes about 5 minutes to file and you will have a number within seconds. If applying online isn’t an option, you can apply by mail or fax by sending the SS-4 form. You can even get an EIN over the phone. If filing by phone, note that it isn’t a toll-free number.See more information on applying for an EIN.  Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

What permits or licenses do I need to start a prepackaged Jerky business from my home in Georgia?

Question – What permits or licenses do I need to start a prepackaged Jerky business from my home in Georgia? I will be selling to Retail stores and online. I will have 1 employee and all products would not have to be refrigerated.Our Response – A few things you will want to start with include: Georgia Department of Agriculture – http://agr.georgia.gov/manufactured-foods.aspx, http://agr.georgia.gov/Data/Sites/1/media/ag_marketing/The-Farmers-Market-Guide.pdfCounty health permitDepartment of Revenue (Georgia sales tax license) – https://startingyourbusiness.com/georgia/ (Step 5)Local business licensingHiring employees (EIN, New Hire Reporting Center, I9, W-4, G4, Workers compensation insurance) Step 8: https://startingyourbusiness.com/georgia/ Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

Will the Bank Consider Equity If My Appraisal Is Higher Than Purchase Price?

Question – I have the opportunity to purchase a building next door to our current facility at a significant discount to what I believe it’s worth.  If the appraisal is higher than purchase price can I borrow additional money through that additional equity?Our Response – In most cases the answer is no.  Having additional value in the building is great but most banks will only lend up to the sales price.  Banks will however, typically allow a refinance on property two years after purchase at which point they lend against the appraised value. Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

How Does Accounts Receivable Financing/Factoring Work?

Question – How Does Accounts Receivable Financing/Factoring Work?Our Response – There are some instances where a loan may not be the best option such as when a business gets a large order but doesn’t have the cash to purchase the inventory or wait for payment. If this is the case, accounts receivable financing or factoring may be a better solution.Factoring is the selling of a company’s accounts receivable, at a discount, to a factoring agency, which then assumes the credit risk of the account debtors and receives payment as the debtors settle their accounts. Factoring can provide a quick turnaround and convenient funding to growing companies who need capital to expand their business. Factoring is not a loan. There is no debt repayment, and long-term agreements are not necessary. For their services, Factoring agents are paid a fee, which is typically based on a percentage of to accounts receivable. Accounts receivable financing on the other hand is a loan secured by a company’s accounts receivable. A financing company would provide a line of credit, using the accounts receivable as collateral.Although factoring and accounts receivable financing are often discussed as if they are the same, there are some differences between these financing vehicles.Factors purchase accounts receivable at a discount and charge fees. Typically, the factor will advance the company 70-90% of the face value of the invoice. When the factor receives payment from the third party, it releases the balance, minus fees. The fees are based on the time taken to collect, the size of the receivable, and the credit history of the business’s customer. Typically, fees range from 1.5 to 5.5% of the total value of the receivable. The cost is a huge drawback to factoring but the advantage of going with factoring is that funds can be available within 24 hours. By factoring your business is also in most cases getting away from payment risk as the factoring company is essentially taking it on. With accounts receivable financing, the businesses still retains the risk that their customer won’t pay, which in addition to slightly slower funds availability, the cost of financing is usually less expensive. Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

How Much Are SBA Loan Fees For a 7(a) Loan?

Question – How much are SBA loan fees for a 7(a) loan?Our Response – On an SBA 7(a) loan there is a guarantee fee of approximately 3% of the guaranteed portion of loans less than $1,000,000 and approximately 3.75% of the guaranteed portion of loans exceeding $1,000,000.  The guaranteed portion is currently 85% on loans under $150,000 and 75% over $150,000.  So if you have a $500,000 loan, the SBA will guarantee 75% which means the guaranteed portion of the loan is $375,000.  At 3% of the guarantee portion of the loan, fees would be approximately $11,250.In addition to the guarantee fee, there is an annual on-going service fee of about 0.6% of the outstanding principal.I do get questions about why the SBA even charges fees.  The complaint is that the SBA is tax payer funded and they also get money by charging the bank additional interest, which is the on-going service fee.Well nothing in life is free and the same goes for the SBA guarantees.  Loaning money is risky and loaning money for business is especially risky.  When the bank gets an SBA loan the bank is essentially getting insurance if the loan goes bad.  The guarantee fee can be rolled into the total loan request.  The on-going servicing fee can’t be directly charged to the borrower so the bank builds the cost into the interest rate.While the SBA loan fees may seem steep if this cost is what it takes to get the bank to make a loan on your project, then it’s a small price to pay. Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask

Expansion Loan For A Winery

Question – We own a successful vineyard and winery in Indiana that has been in business for 15 years.  Over the years we have built a leading brand in our region through a great product and aggressive retail distribution but what makes the most profit is through tasting room sales. Our current problem is that our tasting room consists of a 400 sq. ft retail area that has capacity enough to accommodate 20 to 30 people at a time on a heavy weekend or during festival events. Festivals will typically bring in over 300 people and we are losing a lot of sales because of it.  In addition to limited retail space exists a 5 x 6 restroom with a single commode and sink inconveniently located amidst a back hallway corridor roughly 50 yards from the retail area where customers must enter the winery and are welcomed for wine sampling and gift shopping.  Another growth area will be in having a wedding and conference facility to take in the beauty of our vineyard.  Several other wineries have popped up over the years and just having a good brand is no longer good enough.  The customer expects quick service and comfortable restroom facilities.We want to get a loan to expand our winery but not sure what program to look at. We expect to spend $250,000 in the expansion.  Our business has been built through savings but we don’t feel that that is realistic due to ever increasing working capital needs as retail sales continue to grow.  What would be the best expansion loan for a winery?Our Response – There are several potential avenues to explore in getting funding for your business.  In Indiana, there is a little known loan guarantee program through the State that can guaranty up to $300,000.  Being that you are in an industry that brings in a lot of out of state tourists, they would have an interest in assisting your project.  A more conventional source would be to get a loan guarantee through the SBA 504 program, SBA 7(a) program, SBA Rural Business Loan , or a USDA Business & Industry Loan.  Any of these products would work for you.  The 504 would probably be my first choice with the limited information due to the amount you are asking for and the money being used for construction. Ask us your Question! Have a question about starting a business? Let our business advisors who have worked with over 1,200 entrepreneurs answer your questions. Best of all, there is no charge! Click to Ask