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Does a DBA Need an EIN?

We all know that businesses need to apply for and obtain an EIN (or Employer Identification Number) from the Internal Revenue Service (IRS) to participate in most day-to-day business activities like opening bank accounts, paying employees, and, most importantly, filing taxes with the IRS.

And yet, sometimes, after you’ve registered a legal business name and received an EIN, you might decide to run it, or another element of your business, under a different name than the one you registered. Keep in mind, though, while a DBA lets you use a different name, it doesn't provide the same legal protections as forming an LLC or corporation.

What can you do in that case?

That’s when having a DBA or “doing business as” name can help. In this article, we’ll discuss what a DBA is, how it can benefit your business operations, and whether having a DBA is the right choice for you.

Understanding DBA

A DBA is like having a fictitious name or alias for a business you have already registered. Consider it a nickname you can use instead of your business's legally registered name.

Using a DBA does not affect the legal status of your business. In other words, no matter what legal structure you have in place for your business, using a DBA will not change the operational nature of your business in any material way. For example, let’s say that Patty Smith wants to run her business as Patty’s Pretzels. While Patty can use her DBA on the day-to-day elements of her business, it will not change the legal entity of her sole proprietorship. Only applying for and obtaining an EIN that specifies a different legal structure for her business can do that.

For example, if Patty chooses to take on partners in a partnership or change from a sole proprietorship to a corporation, she must apply for and obtain an EIN. When applying for an EIN, Patty can choose whether to register the name Patty’s Pretzels or if she’d like her EIN to have another name. Even if Patty registers her EIN with any name other than Patty’s Pretzels, she could still use Patty’s Pretzels as the DBA for her business.

In many cases, you will still require an EIN for your business, whether you choose to operate using the business’ legally registered name or a DBA, because the operating structure you select for your business will require an EIN.

Let’s dive into why you might need an EIN for your business and the easy steps to apply for and obtain one.

The Role of an EIN

An Employer Identification Number (EIN), or Federal Employer Identification Number (FEIN), is a number provided by the IRS that identifies your organization as a unique tax-paying entity. Every tax event or transaction with IRS implications for your business needs to be associated with your business’ EIN, ensuring that your business and the IRS are on the same page when it comes to tax time.

Having an EIN for your business isn’t only about tax benefits. Obtaining an EIN will enable you to access and sign up for many essential business-specific products, services, and activities, including opening business bank accounts, being eligible for business loans, executing employee payroll and benefits programs, and more.

When Does a DBA Need an EIN?

A DBA requires an EIN when the business meets specific operational requirements defined by the IRS. For example, you must have an EIN if your business is a partnership, corporation, S-corp, or multi-member LLC. An EIN is also required if the DBA intends to hire employees, provide benefits programs, or even create retirement or Keogh plans for a sole proprietor or a business with more employees.

A DBA does not require a separate EIN from the business through which it operates. Instead, in the case of a DBA or fictional business name or alias, the same EIN used for the legally named business would be used for the DBA itself.

For more details on each type of business structure and whether it requires an EIN, please refer to our Ultimate Guide to EINs.

EIN Requirements Across All Business Structures

As of January 1, 2024, every business, regardless of its structure, is required to have an Employer Identification Number (EIN) from the IRS. Previously, some sole proprietorships and single-member LLCs might have used the owner’s Social Security Number for tax filing and banking. However, new regulations mandate an EIN for all business entities.

Obtaining an EIN is beneficial beyond compliance—it helps distinguish personal finances from business transactions. This distinction is crucial, especially if you plan to sell your business in the future. While using a DBA can help separate your business identity in daily operations, it's important to remember that a DBA does not provide legal separation or asset protection. This can only be achieved through structures like LLCs.

Understanding the necessity of an EIN for your business is more critical than deciding on a DBA. Here are a few questions to help you determine if your business setup aligns with these new requirements:

Applying for an EIN can be completed online, via mail, or by fax. We recommend using online, which can result in an almost instant completion of your EIN process. Mailing or faxing your application will have longer turnaround times, between four business days and up to four weeks, provided all the information on your SS-4 form is correct.

Do you want to apply for an EIN for an internationally incorporated business? Please remember: at this time, international applications can only be received by mail.

Need more help with completing your EIN application process? We’ve outlined a step-by-step approach to applying for your EIN in our Ultimate Guide to EINs.

Advantages of Obtaining an EIN for a DBA

Having an EIN for your DBA business can have benefits far beyond tax benefits.

Having an EIN can:

1. Provide Financial Clarity and Security

An Employer Identification Number (EIN or FEIN) defines your finances as separate from your business finances, limiting personal liability when financial or legal issues arise in your business.

2. Make Business Banking a Breeze

An EIN is essential for opening business accounts, as nearly all banks require it. This requirement enables faster setup and access to a broader range of financial products and services.

3. Protect You Against Identity Theft

Each time you use your SSN for daily business transactions, you can open up an opportunity for identity theft. Using a unique EIN ID for business transactions ensures your personal information is safe and secure.

4. Help Build Business Credibility

While an EIN itself can’t build your credit score, the transactions you complete through it can. Whenever you make on-time credit card payments, LOCs, or other lending vehicles, you add to your business's strong credit score.

An EIN indicates that you’re serious about your business and that it’s a trustworthy, going concern, giving potential vendors, partners, and clients an additional sense of security when choosing to work with your company.

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Common Misconceptions About DBA and EIN

A DBA is simply a registered nickname for your business—it's not a legal entity and doesn't change the legal structure of your company. However, contrary to some beliefs, as of January 1, 2024, all businesses are required to have an EIN, regardless of their structure. This includes sole proprietorships, single-member LLCs, and businesses operating under a DBA.

Even though a DBA does not legally separate your personal assets from your business operations, having an EIN helps you establish a clear financial identity that is crucial for various business activities. If you're using a DBA, it must be linked to the EIN of your main business entity, ensuring all business activities are properly documented under the same tax identification number.

Previously, only certain business structures like corporations, partnerships, or multi-member LLCs were mandated to have separate EINs. Now, this requirement extends universally. Additionally, while subsidiaries generally need their own EINs, businesses simply opening new branches or locations under the same ownership do not require separate EINs—just a single EIN for the overarching entity suffices.

Understanding the requirement for an EIN across all types of business structures, including those operating with a DBA, is more crucial than ever.

Being a business owner comes with many responsibilities and tasks. That’s why it’s important to consult with trusted financial advisors, tax professionals, and lawyers who can help ensure that your business complies with IRS requirements. Your professional services team can also help you when it comes to making important decisions regarding your business.

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