Some people start a business hoping to build wealth. Others do it for more freedom and independence. Whatever your reasoning and motivations are, there are some formal steps you’ll need to go through before you can make your Illinois business idea a reality, including obtaining a federal tax ID number (EIN). There are more than 1.2 million small businesses in the state, which make up 98.2 percent of all businesses in Illinois. Together, they employ 2.4 million people, or 46.4 percent of the Illinois workforce. Small businesses are responsible for 89.9 percent of Illinois’s overall trade, and create tens of thousands of net new jobs every year.
Steps to Obtaining a Federal Tax ID / EIN Number and Registering an Illinois Business
- Forming a Business in Illinois
- Federal Tax ID (EIN) Number Obtainment
- Illinois State Tax ID Number
- Localized Licenses and Permits in Illinois
One of the most important decisions you’ll make for your business early on is choosing what type of business structure you want to form. But before you can make that decision, you’ll need to create a business plan, so you can better understand fundamentals like how your company is going to generate revenue, what expenses you’ll face as you develop the business, and how you intend to grow.
There are four main options to choose from:
- Sole proprietorships. Sole proprietorships are easy to start, and don’t have many ongoing requirements. You’ll pay taxes as an individual on any income you generate in the business, which makes taxes simpler. However, you’ll be exposed to the full brunt of any liability issues your company may eventually face. You’ll take on debts and liability personally. This makes them less than ideal for large-scale enterprises.
- Partnerships. Partnerships are essentially the same as sole proprietorships, except they feature more than one member.
- Limited liability companies (LLCs). LLCs are more complicated to start, but the barrier to entry isn’t too high. LLCs are considered separate legal entities, so they provide at least some liability protection; they can take on debt and be held accountable independently from you, the individual business owner. They’re also considered pass-through entities for tax purposes; they don’t owe taxes on revenue, directly, but you’ll pay taxes as an individual on any salary or profits you take out. In the state of Illinois, you’ll need to file an annual report for your LLC and pay an annual fee.
- Corporations. You could also choose to start a corporation, which allows you to issue public shares to raise funds. Corporations are trickier to start and are subject to more rules and regulations because they have so many high-level perks. They exist as separate legal entities, and provide significant liability protection to owners and shareholders. However, they owe taxes on any revenue they generate. Because individuals will also pay taxes on any money they make from the business, this results in double taxation. In Illinois, specifically, the corporate income tax rate is a flat 7 percent.
Make sure you choose the right structure for your specific business; while it’s possible to change this structure in the future, you’re best served choosing the most appropriate structure from the beginning.
A federal tax ID number is a 9-digit, unique identifying number given to businesses when they register with the federal government. It’s a requirement for many businesses, and is useful to have even for businesses that aren’t specifically required to have one. You’ll also hear it called an employer identification number (EIN), because it’s necessary for any business that hires employees or any business with multiple partners. You’ll also need one to open a business bank account, apply for a loan, or apply for a business license or permit.
The easiest way to get a federal tax ID number is to use our federal tax ID number obtainment service. Through our simple online application, you’ll answer a handful of questions about your partners and your business. In an hour or less, you’ll get your tax ID via email.
Similar to a federal tax ID number, Illinois requires most businesses to have an Illinois state tax ID number. This unique identifying number functions at the state level, and is given to you when you register with the state government. You’ll need one if you’re hiring employees in the state of Illinois, if you’re going to sell taxable goods and services in the state, or if you’re going to owe Illinois-level excise taxes.
You’ll need to get a federal tax ID number before you get an Illinois state tax ID number. Once you have that, you can apply for a state tax ID number using our Illinois state tax ID number obtainment services. Answer a few questions about your business and your partners, and you’ll receive your state tax ID number in 4 to 6 weeks.
Your Illinois business may be required to get a business license or permit, but this isn’t a given. There’s no central authority dictating how licenses and permits are assigned, since each city and county has its own set of standards for business licensure. There are also hundreds of potential licenses and permits for businesses in the state of Illinois to consider.
Your best option is to speak directly with your local Chamber of Commerce. They’ll be able to help you understand your industry, and will be able to tell you which licenses and permits your business needs, if it needs any. Do note that before you can apply for a business license or permit, you’ll need to have your federal tax ID number in place.
Illinois is the sixth most populated state in the United States, but more than two-thirds of its residents and employees all live in just 1 of its 10 economic development regions. Each of these regions offers a different variety of industries, environmental resources, and working population, so no matter what type of business you want to start, you’ll likely find an area that’s favorable to you.
Entrepreneurship is a career path ripe with challenges, but you can make life easier on yourself by making use of our federal tax ID number and Illinois state tax ID number obtainment services. Our online applications are easy to understand, and can ensure you get the tax IDs you need as quickly as possible.