EIN for a Sole Proprietor
You do not have to. But almost every experienced freelancer does. Here is the privacy reason most articles skip.
The default: sole proprietors do not need an EIN
If you are a freelancer, consultant, or contractor who has not formed an LLC or corporation, you are a sole proprietor. The IRS lets you use your Social Security Number for everything. You can file Schedule C, sign W-9s, and issue invoices, all using just your SSN.
So why do most experienced sole proprietors get an EIN anyway?
The privacy problem
Every time you sign a new client, they ask for a W-9. The W-9 asks for your TIN. If you do not have an EIN, your TIN is your SSN. That SSN goes into:
- The client's accounting software
- The client's email (if they sent it electronically)
- The bookkeeper's files
- The accountant's files
- Any backup or archive system the client uses
- Sometimes, the cloud storage of whoever the client outsources their books to
One W-9 means a handful of touchpoints. Ten W-9s, a hundred. After a few years of freelancing, your SSN is in dozens of places you cannot see, controlled by people you have never met.
The banking reason
Most banks now require an EIN to open a separate business checking account, even for sole proprietors. A separate account is one of the foundations of clean bookkeeping. Mixing personal and business expenses on one card is the fastest way to make tax season miserable.
If you want a clean business account, you need an EIN. So most sole proprietors get one as soon as they start taking the business seriously.
How sole proprietors apply, the right way
What changes after you have it?
Almost nothing tax-wise. You still file Schedule C with your personal Form 1040. The Schedule C now shows your EIN on the line "Employer ID number (EIN), if any." Same return, same tax, just better privacy.
Going forward:
- Use the EIN on new W-9s. Send corrected W-9s to existing clients if you want them to update their records.
- Open a business bank account using the EIN.
- Tell your tax preparer the new EIN so they can update your records.
Will I be audited more often if I have an EIN?
No. There is no evidence the IRS audits sole proprietors with EINs more often than those without. The choice is paperwork and privacy, not risk.
Can I cancel my EIN if I stop being a sole proprietor?
Yes. The IRS does not technically "cancel" EINs (they stay on file forever), but you can close the business account associated with the EIN. The how to close an EIN page covers the steps.