Many handymen are solo operators and are considered to be independent contractors or self-employed and can still benefit getting an EIN. This means the IRS does not require them to have an EIN, or employer identification number. However, business owners should consider getting an EIN anyway, because it can prove to be a real asset to their company.
1. An EIN Keeps Your Social Security Number Private
Identity theft is a significant problem in our society. Did you know getting an EIN could help provide you with a layer of protection against ID theft? Consider all the people and entities you work with on a daily basis with your handyman business.
You have W-9 forms, 1099 forms, business credit applications, sales tax invoices, and many other documents where a tax ID is needed. For income tax purposes and other reasons, you’ll need to supply your SSN if you don’t have an EIN. With an EIN, you can keep your SSN private, avoiding risks associated with fraud, data breaches, data theft, and other types of data exposure.
2. Segregates Your Personal and Business Financial Matters
Getting an EIN is very beneficial in isolating your business’s financial matters from your personal ones. While a single owner who is the only employee in a handyman business doesn’t need an EIN, having one greatly simplifies taxes, tracking expenses, and segregating income from personal funds.
Segregating finances is particularly important for owners who choose a single-member LLC as a business structure. LLCs, by law, are required to maintain separation of personal and business financial matters. Owners who blur the line between the two, risk losing the legal and financial protections an LLC business structure provides.
3. Easy Ability to Track Business Expenses
Speaking of separating personal and business expenses, having an EIN makes the business’s accounting and bookkeeping processes so much easier to maintain. This value comes in the form of time saved and simplifying the tax return process. Not just time, but money too, since you can easily identify business transactions, track expenses, and quickly identify relevant tax deductions.
4. Gives Options for Future Expansions
While you may run your handyman business by yourself at the current moment, you may change your mind down the road. For instance, you might want to:
- Expand your business so you can accommodate more clients
- Hire employees to do your administrative work
- Add one or more trucks/vans to your fleet to take on jobs which means more employees
- Convert your business to a partnership or corporation
- Open an individual retirement account
Obtaining an EIN is well worth the effort over the long term because you are in a position to make important business decisions without delay.
5. Helps Establish Business Credit
To obtain a business credit card, you’ll want an EIN. A company’s credit works somewhat the same as it does for individuals. You’ll need to establish credit and keep your rating up.
Alternatively, if your business ends up with financial problems, you don’t want it dragging your personal credit score down. The more you can do to separate your personal and business credit, the better off you’ll be in the long run in establishing and maintaining both good personal and business credit. Good credit scores equate to more favorable loan terms.
6. Speeds Up Business Loan Application Process
While not all financial institutions require an EIN to lend out money to small businesses, many will ask for one. To approve one, they’ll want to see good credit. Since you need an EIN to get a business credit card, having an EIN expedites the process of applying for a loan. You also demonstrate to the lender you’re serious about your business because your company has its own tax ID.
7. Gives Easier Ability to Open a Business Bank Account
To open a business bank account, many financial institutions will require you to first obtain an EIN. While a few may allow sole proprietors to use their SSNs, you should be prepared with an EIN. Again, doing so also empowers you to keep your business and personal financial affairs separate. Business bank accounts are also advantageous to getting loans and other forms of financing, which you may want down the road if you decide to expand your handyman business.
8. Ability to Open an Individual 401(K) or SEP-IRA for Retirement
As an independent contractor, you won’t have access to an employer-sponsored retirement plan, such as a pension, 401(k), or other plan. You’ll have to plan for retirement yourself, such as opening an individual 401(k) plan or a SEP-IRA. If you want to start an individual 401(k), you will legally need an EIN. While legally, you do not need an EIN to open a SEP-IRA retirement account, but most banks will require one.
9. Elevates Your Company’s Brand Reputation and Credibility
Using your SSN as a solo handyman business is legal, but it can also appear amateurish. Having an EIN empowers you to build trust with partners, suppliers, and other vendors. Using an EIN instead of an SSN simply looks more professional.
10. Positions You to Get More Work
If you do commercial work, you will need to prove to larger businesses you’re operating as a legitimate business before they hire you for work. Submitting your EIN is one way to demonstrate your legitimacy, credibility, and commitment to your business.
Having an EIN makes it easier to run your small business without complications with federal and state taxes, tracking transactions, and collecting payments. If you decide to eventually expand your business, you’ll have already proactively put the required component in place, positioning yourself to gain access to more credit or a loan and to hire employees.
Handymen services are likely to always be in high demand and, for skilled individuals, this is a great business opportunity. There will always be a need for repairs. According to IBIS World, in 2023 there were 522,837 handyman services businesses in the U.S. This was an increase of 0.7% over the previous year.