The Importance of Obtaining an ITIN and EIN for Starting a Business in the U.S.: Why the Right Guidance Matter

Member news | October 18, 2024

Guest authored by Benjamin Pik, US Certified Public Accountant – Certifying Acceptance Agent, Expand CPA

Starting a business in the U.S. as a non-resident or foreign entrepreneur presents numerous opportunities but also comes with its share of complexities. Two crucial elements of this process are obtaining an Individual Taxpayer Identification Number (ITIN) and an Employer Identification Number (EIN). These numbers are vital for compliance with U.S. tax laws and for running a smooth business operation. However, navigating the process without the correct advice can lead to confusion, delays, and potential legal issues. That's why having the right guidance is essential, whether from a certified professional accountant (CPA), a tax advisor, or a legal professional.

What Are ITIN and EIN?

An ITIN is issued by the IRS to individuals who are not eligible for a Social Security Number (SSN) but still need to fulfill U.S. tax obligations, often for non-resident entrepreneurs or investors. This number is necessary if you need to file a U.S. tax return but aren’t eligible for an SSN.

An EIN, meanwhile, is a tax ID number for businesses, essential for everything from opening a U.S. business bank account to filing business tax returns and managing payroll. It acts as a unique identifier for your company in dealings with both the IRS and other entities like banks and service providers.

Why Are ITIN and EIN Important?

  1. Compliance with U.S. Tax Laws
    Whether you're an individual filing a return or a business operating in the U.S., having the correct tax identification number ensures you're complying with federal tax laws. Without an ITIN or EIN, businesses risk penalties, delays in operations, and potential legal consequences.
  2. Opening a U.S. Bank Account
    For businesses, an EIN is a basic requirement to open a bank account in the U.S. This is vital for managing business finances, receiving payments, and paying suppliers. A U.S. bank account often makes running the business more seamless, especially if your clients or partners are U.S.-based.
  3. Hiring Employees
    If you plan to hire employees in the U.S., obtaining an EIN is mandatory to file employment taxes. Furthermore, it establishes the legitimacy of your business, which can be important for both potential hires and business partners.

Why Professional Guidance is Essential

While the process of applying for an ITIN or EIN may appear straightforward, there are often specific legal and tax-related details that can complicate things, especially for non-U.S. residents. This is where professional guidance from a CPA or a legal advisor becomes invaluable. Here’s why:

  • Tailored Expertise: Whether you’re structuring your business or navigating U.S. tax obligations, a CPA or lawyer can provide personalized advice suited to your particular situation. This ensures compliance and may even help you avoid higher tax liabilities.
  • Efficient Processing: Tax advisors and legal professionals are familiar with IRS procedures and can help you complete and submit the necessary forms correctly the first time. This reduces delays and ensures that your ITIN or EIN is obtained as quickly as possible.
  • Avoiding Common Errors: Many entrepreneurs face rejections or delays due to incorrect documentation or form errors. A professional advisor can help you avoid these mistakes, ensuring a smoother process. 

Conclusion

Obtaining an ITIN and EIN is a foundational step when starting a business in the U.S., but doing it correctly can save you time and potential headaches. Whether you choose to work with a CPA, a tax advisor, or a legal professional, seeking expert guidance ensures that your business is set up for success from the start.

If you're considering launching a business in the U.S., it's important to consult with a qualified professional who understands your unique situation. The right guidance will help you stay compliant and focus on what really matters - growing your business.

- Benjamin Pik, US Certified Public Accountant – Certifying Acceptance Agent, Expand CPA