Do you need to get an EIN for the holding company? There is no simple answer to this question as everything depends on the company structure and the goals of the business owner.
What is an EIN?
The Employer Identification Number (EIN), otherwise referred to as the Federal Employer Identification Number (FEIN) or Federal Tax Identification Number, is a unique 9-digit number assigned by the United States Internal Revenue Service (IRS) to businesses operating in the United States. The main task of EIN is to identify the taxpayer.
If the number is used for identification rather than payroll tax reporting, it is commonly referred to as a Taxpayer Identification Number (TIN). If it is used for payroll tax reporting purposes, it is commonly referred to as an EIN. These numbers are used for tax administration and should not be applied in any other way. For example, an EIN should not be used in auctions or at the sales of tax liens, lotteries, or for any other purpose not related to tax administration.
Do I Need an EIN for a Holding Company?
The answer to this question can be positive or negative as it depends on the structure of your holding company.
If it operates as an LLC or corporation and is engaged in any active business, you will need to obtain an EIN as it will be required to complete payroll reports, pay taxes, open a checking account, etc.
However, there are legitimate cases when a holding company does not need to get an EIN, and this is determined by the procedure of tax payment that you adopt. For example, if you have an LLC that pays taxes as a corporation or partnership, it is required to have an EIN. However, if you have established a one-member LLC that qualifies as a “disregarded entity”, the taxes of the holding company will be filed in the personal tax return of the business owner. It logically follows from this that a “disregarded entity” does not need an EIN.
Struggling to find the best way and country to establish your business structure? Book a free consultation with our experts to select the optimal jurisdiction to register an offshore company!
FREE EXPERT CONSULTATION
on which jurisdiction is best for
your business, preferred tax regime,
company structure.
on which jurisdiction is best for your business, preferred tax regime, company structure.
Can an LLC Use the Same EIN as its Parent Holding Company?
No, it cannot. Each new business entity must have its own unique EIN. If the new LLC is a single-member company that files taxes as a “disregarded entity”, it does not need an EIN at all in the majority of cases. But it is impossible for an LLC to use the EIN of another company.
A multi-member holding company limited by shares must use an EIN to file tax returns. However, sole proprietors and one-member LLCs do not submit tax returns, so they can use their social security numbers (SSNs) instead. Many business owners still prefer to use an EIN even if this is not required since it opens up many options for tax and financial advantages.
Find out more about what a holding company is and how useful it can be for your business purposes.
In What Cases do the Holding Companies Use an EIN?
A holding company that qualifies as a disregarded entity is not required to use an EIN for any reporting or documents that it submits for income tax purposes: it applies the owner’s SSN or EIN instead. Moreover, this is relevant even in cases where the holding company has an EIN.
A disregarded entity is not required to receive an EIN if:
- it has one employee. By contrast, any actions related to payroll taxes, such as hiring employees or business partners, require an EIN.
- it has no excise tax liability: the IRS levies excise taxes on imported chemicals, coal, the use of heavy vehicles, etc.
If a holding company in the form of an LLC has no employees and has no excise taxes to pay, it can file a tax return using either an SSN or an EIN.
But if you make changes in the structure of the holding company and your LLC ceases to be a disregarded legal entity, you will have to apply for an EIN. For example, you cannot do without an EIN if the number of LLC members increases and it automatically loses the status of a one-member company.
By way of conclusion, it is not always reasonable for a holding company to use an EIN: in some cases, it makes sense to use an SSN.
Advantages of Filing a Tax Return by the Holding Company Using an SSN
Many business owners register holding companies with an EIN, but payment of taxes using an SSN has a number of advantages:
- you can file your personal and business-related taxes together
- you can take advantage of pass-through taxation
- all assets of the LLC owner are protected from creditors
Advantages of Filing a Tax Return with an EIN
EINs are popular because of the wide range of benefits they offer:
- payment of taxes using an EIN increases the level of confidentiality for business owners
- the EIN gives the right to tax deductions that are not available if you use an SSN
- you can hire employees
If you are interested in ensuring business protection, improving its structure, and increasing the level of confidentiality, please contact us at info@offshore-pro.info. Our experts will revert to you promptly to advise on all issues and then help you with all practical aspects of your decision.
Do holding companies need to get an EIN?
The IRS assigns an Employer Identification Number (EIN) to each enterprise, and it is used to identify the company at the time of tax payment. However, if the holding company does not hire employees and has no excise obligations, and also operates in the form of a one-member LLC, it does not need to receive an EIN.
Why is it recommended for holding companies to receive an EIN?
Possession of an EIN makes it possible for holding companies to separate corporate cash flows from personal cash flows for tax purposes. If you have no EIN and, consequently, no separate bank account, it is difficult to confirm compliance with corporate formalities and provide reliable protection in the event of litigation or other negative credit events. Any holding company with employees that files certain tax returns and has several owners, or is related to trusts, real estate and mortgage investments, estates, farmer cooperatives, and non-profit organizations needs an EIN.
Can a holding company pay salaries?
Yes, it can pay salaries to the employees working in its subsidiaries, and this will require an EIN. However, there are some things to be taken into account:
– all those operations have to be recorded in the documentation which states the purpose of each payment;
– financial records should be kept properly, of course;
– it is better to request advice from a tax consultant to make sure the situation with taxes is under control.
What can a holding company write off?
If this is a real estate holding company, you can deduct business expenses, which will be more profitable than including them in your personal income tax return.
– In the first year you can deduct only depreciation of your real estate;
– Mortgage interest can also be subtracted;
– You are free to deduct the legal expenses of your company.
