 Income tax 2021-2022. Schedule C. Identification numbers. Get ready to get refunds to the max. Diving into Income Tax 2021-2022. Most of this information can be found in Publication 334, Tax Guide for Small Business, found on the IRS website, irs.gov, irs.gov. Looking at the first line of the Income Tax Formula income line, noting, however, that we do have the supplemental schedule, which will, in essence, be an income statement with income and expenses. Expenses, in essence, being deductions, the net flowing into the top line of the Income Tax Formula and first page of the form 1040, which we can see here on line number eight, flowing in from the Schedule C to the Schedule 1, then to the first page of the 1040 line eight. This is the Schedule C profit loss from business, which is, in essence, an income statement for the business. Identification numbers. So we've got the Social Security number. Note that this is probably not the number that you would want to use for the identification number of your sole proprietorship. Even if you don't have employees, you probably want to get an EIN number. But if you don't have one and you just start doing business, and if you don't have anybody that you're doing work for, then maybe it would be okay to have just the Social Security number. But if you have to give out the number of the entity that you are using, even if it's not because of payroll, possibly for 1099 information, then you're going to want the EIN number. The EIN number looks a little bit more professional. If you're just doing gig work or something like that, maybe that's not something that will be of a consequential to you. So generally use your SSN, Social Security number, as your TIN, Tax Identification number. You must put this number on each of your individual income tax forms, such as the 1040 and its schedules. So clearly you're going to need the SSN, the Social Security number for your Form 1040. The question is, do you also want that on the Schedule C? Form SS5 used to apply for Social Security number. So if you need to apply for it, you get the SS5 as you can start the process. Application for Social Security card. This form is available at Social Security Administration, the SSA offices, or by calling. There's a number here. It is also available from SSA website. You can go to the ssa.gov to get more information there. So the IRS will issue an ITIN if you are a non-resident or resident alien and you do not have and are not eligible to get an SSN. So if you don't have an SSN, then you might have the ITIN. The ITIN will expire for any taxpayer who does not file a federal income tax return. So if you have an ITIN, you want to make sure that you're filing an in-compliance in order to keep the ITIN, or who is not included as a dependent on the return of another taxpayer for three consecutive years. If someone else is filing you and you're on that tax return and you have an ITIN, then you'd think that would still qualify because the IRS sees that you've been reported somewhere. So in general, if you need to obtain an ITIN, you must attach form W7 application for IRS individual taxpayer identification number with your signed original completed tax return and any other required documentation and mail them to the address in the instructions for form W7. Exceptions are covered in the instructions. So if this is something that is applicable, you could take a look at the instructions to the form W7. If you must include another person's SSN social security number on your return and that person does not have and cannot get a social security number, enter that person's ITIN, the application is also available in Spanish. So employer identification number. So this is going to be important to the Schedule C because once again, you might want an employer identification number even if you don't have employees that name being a bit deceiving because you might say I'm a sole proprietorship. I don't have any employees. You might have employees as a sole proprietor, but maybe you don't. And then you might say, well, I don't need that number. However, if you're going to do business for like larger companies, then they're going to want to issue you a 1099 oftentimes for the work that they do because they're required to issue that to a sole proprietorship. And you oftentimes don't want to give out your social security number to a bunch of different entities. It's usually going to be safer to give out say an EIN number. It also looks more professional. So if you have an EIN number, and you're trying to get business or you're trying to compete or bid for jobs, then they're probably they might give a little more weight to someone that gives them an EIN number as opposed to the social security number. And of course, if you have employees, then you're required to have an employee or identification number. So you must also have an EIN to use as a TIN if you do either of the following. So this is what you must have them for. If you pay wages to one or more employees, then obviously you need an employer identification number. File pension or excise tax returns. If you must have an EIN, include it along with your social security number on your Schedule C as instructed. So that'll be reported on the Schedule C. If you have an EIN employer identification number, the EIN, you can apply for an EIN. The process is pretty easy to get an EIN. So if you don't have one and you're self employed, pretty easy process, you don't even need to talk to anyone. Generally, it's usually something that you can basically do on an automated process within the IRS website at this point. So online, by clicking on the employer ID numbers, the EIN, there's a link at irs.gov forward slash EIN. If you just go to the IRS website irs.gov and type in EIN or employer identification number, you'll find it. As long as the principal business location is in the United States or U.S. territories, the EIN is issued immediately once the application information is validated. So again, immediately issuing it pretty quick process, which is nice. You can also do it by telephone. There's a telephone number here, not a toll-free number. However, only if the principal business is located outside the United States or U.S. territories. So if you're outside the United States or U.S. territories, it could be a little bit more complicated then. By mailing or faxing the form SS4 application for employer identification number. So you could do it the old-fashioned way instead of doing it with online. You could print out the form SS4 and either fax it or mail it in and do that method. New EIN, you may need to get a new EIN if either the form or the ownership of your business changes. So then if the ownership of the business changes, then you're going to have to make an adjustment for the EIN possibly. So for more information, you can see Publication 1635 understanding your EIN. Now again, obviously if the ownership of a sole proprietorship changed, that would be kind of unusual, you know, because you only have one owner, but you can see why the EIN would be applicable for different entity types. So if your entity changes, the type of entity changes, for example, or there's different changes in the ownership possibly going from a sole proprietorship to a partnership or something like that, then that could have an impact on the EIN number. So when you need identification numbers of other persons, so now you need someone else's identification number. In operating your business, you will probably make certain payments you must report on information returns. These payments are discussed under information returns later in the chapter. So in other words, you'll have to report to somebody, to the IRS who you paid. So that would mean remember that whenever you're thinking about the IRS, your thought process is this, goes thusly. You're going to say the IRS wants to charge people on income. They want to force people to report the income. Who do they have pressure on to make sure that the income is reported? The payer, because every business transaction has a recipient of the income and a payer. The payer wants to record the expense because that's a tax benefit. Therefore, the IRS has the leverage on the person paying. So if you're a small business, if you're a business of any kind, the IRS has leverage on you on the pay inside to make sure that you're reporting any kind of informational return information that they need to the person who's receiving the money on the income side, you're basically kind of ratting out, you know, if you want to think about it that way. The person you gave money to to make sure that they report it as income so that they have to pay the taxes on it. And so that would be things like if you're giving something, we'll talk about these later, but a contractor, for example, that is a sole proprietorship, the IRS wants you to issue them a 1099. And of course, if you have an employee, the IRS wants you to actually take money from them physically, withhold it and give it to the government and give them a reporting of a W-2 form. So you must give the recipient of these payments the payee a statement showing the total amount paid during the year. You must include the payee's identification number and your identification number on the returns and statements. So employee, if you have employees, you must get an SSN from each of them. So the employees, that's when the government has the most leverage and they're going to want not only the reporting requirements, but you are now the collection agent of the government. You're going to withhold money from your employees. You're going to pay it to the government on their behalf. And so record the name and SSN of each employee exactly as they are showing on the employee's social security card. If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. This may occur if the employee's name was changed due to the marriage or divorce form W-4. Employees withholding allowance certificate is completed by each employee. So the correct federal income tax can be withheld. So if you have an employee, you got to have them fill out a W-4. The W-4 is going to help you be the tax collector and do that properly in accordance with the law, taking money out of each of their paychecks and giving it to the government on their behalf. If your employee does not have an SSN, he or she should file form SS5 with the SSA. Other payee, if you may make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN social security number. If you must report payments to an organization such as a corporation or partnership, you must get its EIN number. So in other words, the main requirement here oftentimes is if you're paying somebody else, then you might have to issue them like a 1099. And usually then you would want to get their number and they might just have a social security number. But again, a contractor could as a sole proprietorship then have an EIN number. So either of those you would want so that you can report that you gave them money. So the IRS, you're basically ratting them out to the IRS to make sure they should be reporting their income anyways. It's not your fault or anything, but you got to give them the information. So the IRS can then check it out on their side to make sure they're reporting the income so they can get a piece of it. So to get the payees SSN social security number or EIN, use form W9 form. So that's the request form to get that information. Request the taxpayers identification number and certification. A payee who does not provide you with an identification number may be subject to backup withholdings. For information on backup withholdings, see instructions for the request form W9 and the general instructions. In other words, if you say, okay, I've got to give you, I need to issue you a 1099. I need your number to give me that your social security number or EIN. You issue them a W9 to request that information. But unfortunately, a lot of small contractors either they might not fully understand this whole process and they might not want to give you their social security number. They might not have an EIN number. Then you might not be able to get it in that case, which in that case, you would want to check beforehand and make sure that you're dealing with someone that if you have to give them that that they're okay with that. But then if you don't get it, then the IRS might say, well, if you're not going to rat them out to us, if you're not going to tell us who they are, and you couldn't, you couldn't rat them out because they wouldn't give you their number because, you know, for whatever reason, then the government may want you to actually withhold money act as the tax collector again. And instead of paying them the full amount, you withhold some portion of the payment and again give it to the government on their behalf, which could of course upset the contractor, especially if they don't understand why you're asking for their social security number. And if you don't pay them the full amount that they asked for and so on. You kind of want to get that settled up front and get that information up front and make sure everybody knows what the requirements are involved across the board before the deal is done.