The tax ID number or the EIN number is a unique nine digit number assigned by the IRS for the purposes of tax filing and reporting. All the businesses in Colorado that have employees and pay taxes are mandatorily required to obtain the EIN number from the IRS.
All the business entities like partnerships, Limited Liability corporations, trusts, not for profit organizations, church and other religious organizations and different types of corporation are required to obtain Colorado tax ID number, before starting the business operations and hiring employees. Sole proprietors who do not have employees are exempted from the EIN, they can use their social security number in place of EIN.
A sole proprietor firm also requires to obtain Colorado tax ID number under the following circumstances.
- If the firm plans to hire employees
- If the proprietor wishes to buy a solo 401(k) or Keogh retirement plan
- To incorporate a limited liability company or form a partnership
- To file for bankruptcy
- To inherit or buy an already existing business and operate it as sole proprietorship firm
- Most of the banks and financial institutions ask for EIN number to open checking accounts for the business and to extend line of credit
Most of the sole proprietors prefer to apply for the Colorado tax ID number even when it is not required because,using the EIN helps them to protect identity theft and helps them to establish the status of an independent contractor. In the absence of EIN, the sole proprietor has to submit his social security number to the IRS. This poses a threat of identity theft by fraudsters who use the social security numbers to file fraudulent tax returns and obtain refunds. Using an EIN number helps to portray a positive and professional image to the prospective clients.
The process of obtaining a Colorado tax ID number is simple and fast through the website of the IRS. The website has an EIN assistant tool to guide the applicants through the process of online application. The applicants can receive the EIN number instantly after completing the application process. They can also apply through fax, telephone or through mail.