The Internal Revenue Service (IRS) issues Employer Identification Numbers (EINs), which are nine-digit tax identification numbers, to companies that conduct business in the US. For any business owner, obtaining an EIN number is a critical step because it enables them to lawfully create bank accounts, seek for credit, and recruit staff. Since the IRS offers this service for free, there is no fee to apply for an EIN number in Tennessee.
The business owner must have a current Taxpayer Identification Number (TIN), Social Security Number (SSN), or Individual Taxpayer Identification Number (ITIN) in order to apply for an EIN number. You can submit the application online, by mail, fax, or phone. Basic information about the company, including the legal name, physical address, and organizational structure, must be provided by the business owner.
Should I Use My LLC to Pay Myself a Salary? You have the choice to either take dividends from your LLC or pay yourself a salary as a business owner. You will be responsible for paying Medicare, Social Security, and state and local income taxes if you pay yourself a salary. However, if you take distributions, you will still be subject to federal and state income tax even though you will not have to pay Social Security or Medicare tax. The choice between paying yourself a salary or taking distributions is based on your financial circumstances, business objectives, and tax planning.
If an LLC chooses to be taxed as a corporation for federal income tax purposes, then yes, the LLC is subject to Tennessee franchise and excise tax. While the excise tax is based on the LLC’s net earnings, the franchise tax is based on the capital stock value of the LLC. Franchise and excise taxes will not apply to an LLC if it has not chosen to be taxed as a corporation.
How Can I Avoid Tennessee Franchise Tax? In Tennessee, there are numerous strategies for avoiding franchise tax. Instead of setting up the company as an LLC, one choice is to do so as a limited partnership or limited liability partnership. Another choice is to set up the company as a general partnership or a sole proprietorship, which are exempt from franchise tax. However, not all business owners may be able to benefit from these possibilities, therefore they should be reviewed with a tax expert.
Finally, getting an EIN number is a crucial step for any Tennessee business owner. The IRS offers it as a free service, and the application procedure is simple. To reduce their tax liability and adhere to Tennessee tax rules, business owners should carefully analyze their tax strategy and organizational structure.