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What is an EIN? - Employer Identification Number - YouTube
Channel: TRUiC
[1]
Hi, I'm Tony here
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at The Really Useful Information Company
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and today, we're talking about EINs.
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We'll discuss what they are,
why you might want or need one,
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and how to apply with the IRS for free.
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(chimes)
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So what is an EIN exactly?
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Simply put, an EIN is like
a Social Security number
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for your business.
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What EIN actually stands for
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is Employer Identification Number.
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As the name implies, an EIN is
a number that the IRS issues
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to be able to tell businesses
apart from one another.
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You can also find it called FEIN
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because someone decided
they wanted the word federal
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in front of it
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or you can find it referenced
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as your business's Tax
Identification Number.
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Whatever you decide to call it,
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you'll probably want to know
if you even need an EIN.
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For this, the key word is employer.
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If your business has or is
going to have employees,
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you'll need an EIN.
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Additionally, any business
that is either a partnership
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or a multi-member LLC
has to have an EIN too.
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The partnership return
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that these business structures
have to file with the IRS
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requires an EIN.
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While this technically means
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that businesses that
are sole-proprietorships
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or single-member LLCs without employees
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can function without an EIN,
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there are plenty of reasons
you might still want one.
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First, most banks will
require you to have an EIN
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before they'll let you open
a business bank account.
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A separate bank account for your business
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is something you will want.
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A business bank account makes it easier
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to track what is or is
not a business expense
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and lets your business build credit
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and qualify for more loans.
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Second, as we mentioned before,
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if you want employees,
you're going to need an EIN.
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Getting an EIN early on lets
you be prepared for the future.
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Third, having an EIN
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can make your business
appear more credible.
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Business owners often prefer
to work with other businesses
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versus just a person doing
something on their own.
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And finally, having an EIN
helps maintain separation
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between what is yours personally
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and what belongs to the business.
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Now, knowing all the reasons
you might want an EIN
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won't do you any good if you
don't know how to get one.
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Fortunately, applying for
an EIN is easy and free.
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You do so through the IRS website
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and it can be done in five minutes.
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Now keep in mind, you are only
able to use the IRS portal
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between the hours of 7:00 a.m.
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and 10:00 p.m. Eastern Standard Time.
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To begin, the first thing
the IRS is going to ask you
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is what type of legal structure
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are you choosing for your business.
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They give you six options
on the first page,
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with the option to view 23
other legal entity types.
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For the context of this video though,
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we're going to keep it simple
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and stick to running
you through the process
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of getting an EIN for an LLC.
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You'll be able to get the idea
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and also have insight into
what sort of information
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you'll need for every business type.
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After you have selected
limited liability company
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as your business structure,
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you'll be taken to a page
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to fill out some of the
basic details of your LLC.
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On this page you will select the state
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your business is physically located in
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and how many members your
LLC is going to have.
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Depending on what you
answer for this section
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will determine which screen you see next.
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If you enter one as the number of members,
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you will get a different
confirmation screen
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than if you enter two or more.
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And this is actually
because a single-member LLC
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behaves differently
than a multi-member LLC,
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at least in the eyes of the IRS.
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See, limited liability companies
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have what are known as
default tax statuses
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and these are different
for single-member LLCs
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or multi-member LLCs.
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A single member LLC is, by default,
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taxed as a disregarded entity
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and a multi-member LLC is, by default,
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taxed as a partnership.
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Besides these default elections
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of disregarded entity and partnership,
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there are two other
elections you can choose,
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an S corporation and a C corporation.
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Briefly, an S corporation will
help you reduce the amount
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of self-employment taxes
you will have to pay.
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You would select an S corporation,
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one, if you're going to make
a sufficient amount of profit
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and two, you'd be taking
all of that profit
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out of the LLC each year
and not reinvesting.
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On the other hand, you
would choose a C corporation
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if you plan to raise money
from professional investors
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and reinvest income back into the company.
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But remember, both these options
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require more paperwork and maintenance
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and have increased associated costs.
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For most people, the default
elections are probably best.
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You and any other members of your LLC
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will pay taxes on your
own personal tax returns
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and you can always elect to
change your tax status later.
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We'll have all the details of
everything you need to know
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about business and tax structures in our
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"What Structure Should I Choose
For My Business?" article
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that we will link in
the description below.
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Once you've clicked
through the confirm screen,
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you'll be asked to click on an option
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for why you are getting
an EIN in the first place.
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You'll have five options.
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One, because you are
starting a new business.
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Two, because you have hired employees.
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Three, for banking purposes.
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Four, because you're changing
the type of your organization.
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Or five, because you have
purchased an active business.
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Most people will choose it's
because they've hired employees
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or for banking purposes.
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After you've selected
your business's purpose,
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you'll be greeted with the question
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of who is the responsible party?
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This is basically a fancy way of asking
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who is trying to get this EIN?
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Is it the owner, a member,
or a manager of the LLC?
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Or is it a third party?
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If you are trying to get an
EIN on someone else's behalf,
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you are a third party
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and you will have to fill out
a bit of extra information.
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First, you'll have to state
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if you are a third party designee,
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which just means someone has in fact
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given you their blessing to get an EIN.
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If you say yes,
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you'll be taken to a
screen that has you affirm
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that someone has completed a form
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naming you as their designee.
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If you say yes,
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you'll continue on the normal
path I'll explain in a moment,
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but if you say no here,
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you'll be given instructions
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for unauthorized third parties.
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Here the IRS states, quote,
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"You are not authorized to receive an EIN
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"on the taxpayer's behalf.
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"However, you may continue
with the online application
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"and upon successful completion,
an EIN will be assigned."
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For most people, however,
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as soon as you've said
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that you are an owner, member, manager,
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or third party designee,
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you'll be prompted to fill out
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the company's physical address,
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and if different, its mailing address.
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Next, you'll get to the screen
called tell us about the LLC.
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Here you will need to provide, one,
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the legal name of the LLC,
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which is why it may be best
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to wait until your business
is formed to get an EIN,
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two, any trade names or DBAs you're using,
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three, the county and state
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where the business is physically located,
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four, the state in which the
formation documents were filed,
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and finally five, the month
and year the LLC was formed.
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Once you're done with
tell us about the LLC,
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there comes tell us more about the LLC.
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Here on this screen, you'll
be asked to say yes or no
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to some rather specific questions.
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Namely, does your business involve
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using a truck over 55,000 pounds?
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Does your company involve gambling?
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Are you going to have
to fill out IRS Form 720
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and file quarterly Federal
Excise Tax Returns?
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We'll link IRS Form 720 below
so you can see for yourself,
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but most of the time that's gonna be a no.
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Does your business produce
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or sell alcohol, tobacco, or firearms?
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And finally, the one relevant
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to most people trying to get an EIN,
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are you, in the next year,
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going to have employees that
you will need to have W-2s for?
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Believe it or not,
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that last question is the only one
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that will get you an
extra screen with the IRS.
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On this extra screen, you
will be asked to estimate
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to the best of your ability
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how many employees you think
you will have this year,
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how many agricultural employees
you think you will have,
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if you expect your
withholding taxes collected
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to be less than $1,000 this year,
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and the date you did or
expect to start paying wages.
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Then, comes the home stretch.
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You'll have two more screens
of bubbles to fill out
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asking you what the
business will be used for,
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a final confirmation that
all the details are correct,
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and then you're done.
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Now, I know this seems like a lot.
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But I can assure you,
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having gone through
this process many times
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to research for this video,
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you can actually get
all of this information
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filled out quickly, in
often under five minutes.
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The IRS actually does a very good job
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making this process go smoothly.
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If you have any questions
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about anything we've
talked about here today,
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make sure to leave us a comment below.
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For detailed guides, check
us out at HowToStartAnLLC.com
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and make sure you like this video
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and subscribe for more
really useful information.
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I'm Tony here at TRUiC,
and thanks for watching.
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(calm music)
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