Can a Sole Proprietor Use One EIN for Multiple Businesses?
Explore how an EIN is tied to the individual owner, not the business name, allowing sole proprietors to operate multiple ventures under one tax ID.
A sole proprietorship is a business where an individual owns and operates a business that is not a separate legal entity from the owner. For tax purposes, these businesses often use an Employer Identification Number, or EIN. An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) for tax administration.
While not always required for a sole proprietor without employees, obtaining one is useful for opening a business bank account or protecting one’s Social Security Number from vendors and clients.
The General Rule for Sole Proprietors and EINs
For a sole proprietor, the IRS rule is that an individual operating several distinct businesses will use a single EIN for all of them. This is because the EIN is assigned directly to the individual taxpayer, not to a specific business name or “Doing Business As” (DBA) trade name. The IRS views all sole proprietorship activities conducted by one person as part of that individual’s overall business operations.
For instance, if an individual operates a landscaping business and later starts a separate woodworking business, both ventures would operate under the same EIN. The addition of a new business line or trade name does not trigger the need for a new tax identification number.
The relationship between a sole proprietor and their EIN is analogous to an individual and their Social Security Number (SSN). A person uses the same SSN for all jobs they hold, and similarly, a sole proprietor uses one EIN for all business activities they manage as the tax identifier for their entire portfolio.
Scenarios Requiring a New EIN
A sole proprietor must obtain a new EIN for events that alter the legal structure of the business. The primary trigger for this is changing from a sole proprietorship to a different business entity, which the IRS considers a new entity requiring its own tax identification number.
A new EIN is required in the following circumstances:
- Incorporating the business by forming an S Corporation or a C Corporation, as the corporation is a distinct legal entity.
- Forming a partnership when one or more partners join the business.
- Converting the business into a multi-member Limited Liability Company (LLC), which is typically taxed as a partnership.
- Purchasing or inheriting an existing business to operate as a sole proprietorship, as you cannot use the previous owner’s EIN.
- Filing for bankruptcy as a sole proprietor, which necessitates a new EIN for the bankruptcy estate.
Tax Reporting for Multiple Businesses Under One EIN
When operating multiple businesses under a single EIN, the financial activities of each business must be reported distinctly on the owner’s personal tax return. This is done using Schedule C, “Profit or Loss from Business,” which is filed with the individual’s Form 1040. A separate Schedule C must be completed for each distinct business activity.
For example, an owner with a consulting service and a retail operation would prepare two separate Schedule C forms. On each Schedule C, the owner details the gross income and deductible expenses for that specific business, which results in a net profit or loss for that venture.
After completing a Schedule C for each business, the net profit or loss figures are combined. This total net business income or loss is then transferred to Schedule 1 of the owner’s Form 1040, where it is combined with other sources of income.