Step 7: Getting a Tax Identification Number


When I told my friends and family about my plans to start my own business, many of them suggested I hire a business lawyer and an accountant right off the bat. The most common suggestion I received was to have a lawyer file all the initial paperwork for me. That way, I could be sure everything was in order as I set up my business, all the correct fees were paid to the correct entities, and everything was properly set up for things like taking payment, tracking expenses, and paying my taxes.

I wasn’t so sure that was necessary, but I took everyone’s advice and shopped around for lawyers. My first few phone calls left me unconvinced. In one conversation, after I admitted I was interested in hiring someone to help me set up my business, one lawyer told me the process was pretty cut and dry. He said that in terms of the help that he could provide at this stage, setting up my business would entail him giving me the forms to fill out, telling me the amounts to write on the checks (including his), and filing the paperwork away for me.

After that phone call, I did some of my own research. It occurred to me that I’d started shopping around for lawyers on the advice of others—people who had no entrepreneurial experience of their own, mind you—without stopping to consider whether I thought this was the route to go. In doing the researched, I learned very quickly that setting up my business was as straightforward as the lawyer I spoke to had said it would be. What I also learned was that these first several steps of registering my business weren’t something that required a lawyer looking over my shoulder. The time for legal advice and protection would come later, but in the first few decisions (and the busywork) that would be involved in setting up my business, this was something I could handle on my own.

I’m glad the lawyer was honest with me. And, looking back, I think it was probably his intention to have me take a closer look, and come to the realization that I didn’t need to spend any money on essentially doing paperwork. Not this early in the game, anyway.

Fast-forward several years, and I would hear a story that hit close to home. At a networking event, I was talking with a financial advisor for a credit union. She told me about a meeting she had with a client—a new business owner—about his business’s financial. The short of it is that her client had worked with a consultant to help him set up his business, and now he worried something may have been a little off about that decision. Before contacting a consultant, the entrepreneur filled out some of the paperwork on his own, and he found himself at the point where he needed to get a federal tax identification number for his business. Being that this was tax-related, the entrepreneur figured he should hire sometime to take this step for him, to make sure that it was done correctly and that everything was squared away come tax time. That’s what he thought he was supposed to do—maybe because, like in my situation, a group of well-meaning but ultimately unknowing individuals made the suggestion.

Whatever the case, he hired a business consultant who helped him get his tax identification number—for a fee of $600 and two weeks’ waiting time.

That’s about when the entrepreneur walked into the financial advisor’s credit union with questions about his business’s finances.

Upon hearing what happened, the financial advisor was livid. She couldn’t believe that a consultant had charged this man anything, let alone $600, for something he could have done himself for no cost at all. The IRS’s website states that it prefers business owners perform this task themselves, online, in the comfort of their home, because that makes it quicker and easier for everyone.

I shared the financial advisor’s anger at the situation. When I had to get through this step with my first business, I’d been ignorant about the process as well. I could have just as easily given the task to someone else and found myself with a hefty invoice in my hands.

Instead, I sat down at my computer ready to go. I assumed I would spend the next hour scouring the IRS’s website for the information I would need, and then spend another hour filling out forms with info I’d already submitted elsewhere. (This has been my experience with the IRS thus far.)

What happened instead was that I spent less than ten minutes online, filling in only basic information for my business. I received my Employer Identification Number immediately at the end of the process.

That’s it. No money spent, and only about ten minutes out of the day. It took longer for my coffee to brew than it did for me to receive a tax ID number for my business. What a great way to start the day.

And that’s why I got so angry at the financial advisor’s story, about an unknowing new business owner who was out two weeks’ time and several hundred dollars on something he could have accomplished from his smartphone while sitting on the toilet. That’s not right. And the financial advisor agreed vehemently.

At the end of the day, I’m glad the entrepreneur met the financial advisor who told me this story. At their meeting, she told him the truth—that she could have helped him get his federal tax ID number right there in her office, absolutely free of charge. She proceeded to warn him about all the other aspects of starting his business that he should first attempt on his own, and gave input on when he should start looking for a lawyer for his business. In spite of everything, he’s much better off now that he has an advisor who has her client’s best interests at heart.

Of course, before he got to the point where he could chock it up to a lesson learned and wisdom gained, the entrepreneur was angry about the loss of both his time and his money, and at the ignorance that caused him to be, the way he saw it, taken advantage of. And I’m willing to bet he was even more upset that he didn’t dig a little deeper so that he could discover he didn’t need such an expensive proxy, least of all for such an easy step in starting his business. When deciding whether or not to hire the consultant in question, he stopped at “that’s what you do,” without questioning the “why” of that statement. Maybe if he’d gotten that far, he would have asked himself the question of what he thought was the right approach.

I was lucky enough to have someone all but spell it out for me over a quick phone conversation. If that wouldn’t have happened, I could just as easily have been the unlucky entrepreneur in the financial advisor’s story.

To be honest, I struggle to find the lesson in all this. The simple fact is, sometimes you ask for help and it pays off; other times you ask for help and you pay for it. Sometimes you make the right decision, and sometimes you make the wrong decision. That’s just the way it goes, in business and in life.

In lieu of a lesson, I can use these experiences to impart advice on new business owners. In most cases, business owners shouldn’t need a lot of help with the initial busywork that comes along with starting a company. We shouldn’t spend any money on downloading forms, filling out paperwork, and filing it away with the various government entities. And we shouldn’t spend any money on a lawyer, business coach, or “expert” who tells us it’s necessary to pay them in order to get these things done right.

Truth be told, many of the first steps of starting a business are all about boring but necessary paperwork. And in order to accomplish these administrative steps, much of the information we need is readily available online. We don’t need to look that hard to find it. Our business’s money is sbetter spent on what I think are the real steps to starting a business—things like reaching out to our customers, building our audience, and developing our product.

The paperwork is what we need to do in order to start the business, but it has little effect on whether or not that business will be successful. That’s where all the other stuff comes in. And that’s where we should be spending our limited time, effort, and money.

This is a lesson that cost a certain business owner a good investment to learn. It almost cost me, too. But we’re better for the experience. All business owners are better and wiser for their mistakes, no matter how costly. If we can take this reminder with us as we move forward into the real challenges of starting a business, we’ll be well on our way to long and successful careers as entrepreneurs.

And that’s something money just can’t buy.


About Author

Robin Karleskint

Robin Karleskint has worked at several new businesses, both as an owner and an employee. Currently she is a project manager at Cosmital Designs, a company she co-owns in Orlando, Florida.