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I have a friend who owns a small business (c-corp) in Maryland and who has asked me to do some independent consulting work for her.  I'm located in Chicago and have never done consulting work before, I only plan on doing jobs for my friend's company at this point but may, somewhere down the line, want to pick up some extra work depending on how this goes.

 

I want to keep things legal and smooth, and getting an EIN is something I want to do just so I don't have to give out my social security number (especially if I decide to pick up another job or two later on), but my friend is suggesting I get an EIN and make a business name along with it rather than just get an EIN associated with my name.

 

I'm a little murky about how being an independent consultant works and though I've read a ton online I feel like I'm encountering some contradictions and much of what I read is for people who are planning to operate on a much larger scale than just wanting to take a job and pay taxes in a legit fashion and my friend is giving me some information that conflicts with what I have read.

 

My questions are as follows:

 

When I file for an EIN, is it attached to my name or to a business name?  Can I have more than one EIN?

 

When I file for an EIN there is a place to list the business name, do I need to have a DBA filed in order to list a business or can I just list anything? (my friend seems to think I can just put down "RedFish Consulting" or whatever on the EIN application and I don't actually need a DBA for "RedFish Consulting"... I'm not so sure).

 

If I file for an EIN and then 6 months from now decide I want to jump into this full force, can I then file for a DBA to be associated with the EIN?  (I'm not really interested in filing a DBA right now, it's not worth the hassle/expense for a couple hours a week of work for a friend - I'm not expecting to make much doing this at all, it's just basically to help bolster my resume).

 

It is my understanding that I could just file for an EIN attached to my name, give my friend my EIN for her records and whatever she needs to do on her end, then I deposit the checks (which she says come in my name) into my account and attach a form to my annual taxes for income from being an independent consultant and pay taxes/medicare/social security on it at that point. (I'm also willing to open a bank account with my EIN and keep "business funds" in there so I can withhold taxes before it even hits my personal account, if that's possible).

 

As you've probably gathered, I'm really a novice when it comes to running a business and this basically just amounts to doing some web site updates for a friend a few hours each week and needing to be an independent contractor to get paid for it.

 

Any advice is appreciated!

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The IRS has a page about EINs and down the left side has links to Small Business/Self Employed Topics.

 

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online

 

The two best ways of learning about all this is to study it on the IRS website or consult a tax pro.

 

The worst way is relying on strangers on the internet to give you tax advice.

 

With one exception. There's a tax attorney (Tax_Counsel) who participates here and might respond to your question.

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With one exception. There's a tax attorney (Tax_Counsel) who participates here and might respond to your question.

 

That right there's what I'm hoping for... Anything I'm told will be verified, but right now I'm swimming in murk without a real direction.  My friend says she pays all her instructors as contractors and they just get an EIN with a made up company name and file a schedule C with their taxes, but I'm not really willing to jump ahead with that based only on her saying other people do it because it seems really wrong to me that I could just list any old company name to get an EIN without having a DBA.  I don't want any surprises when filing my taxes next year ;)

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My friend says she pays all her instructors as contractors and they just get an EIN with a made up company name and file a schedule C with their taxes,

 

She might very well be illegally misclassifying employees as independent contractors. So you'll want to make damned sure you are really working as bona fide independent contractor before you get involved.

 

The IRS has a webpage devoted to that distinction. Study up.

 

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

 

 

 it seems really wrong to me that I could just list any old company name to get an EIN without having a DBA.  

 

Actually, it isn't wrong to list any old company name to get an EIN because you actually will be doing business as (DBA) that company name once you use it to get an EIN.

 

However, you don't need a business name to get an EIN. You can get one under your own name. Take a look at the Form SS-4:

 

http://www.irs.gov/pub/irs-pdf/fss4.pdf

 

And the instructions:

 

http://www.irs.gov/pub/irs-pdf/iss4.pdf

 

There is also a publication called Understanding Your EIN:

 

http://www.irs.gov/pub/irs-pdf/p1635.pdf

 

 

 

 I don't want any surprises when filing my taxes next year ;)

 

 

You got that right.

 

:rolleyes:

 

By the way, you'll need to study up on Self-Employment Taxes and Quarterly Estimated Taxes. Information about both is also available at www.irs.gov

 

And I'm guessing that the IL income tax department might also require Quarterly Estimated Taxes. They've got a website, too.

 

http://www.revenue.state.il.us/#&panel1-1

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Illinois will want quarterly estimated taxes, but in the beginning I won't be making enough to have to file, after a few months I might hit the minimum income requirement but when I say I won't be making much, I mean it - maybe $50 a week, tops.  I'm not against doing taxes quarterly (I'm going to be setting up a separate bank account for deposits, even if it's just a personal one, so that I can keep the estimated taxes out of my primary bank account so filing quarterly isn't a big deal).  

 

My primary concern is that my friend wants me to list a business name when I get my EIN and I am not going to just write something down without knowing it's legal.  I mean, how can I get my EIN and then write on the form that my company is "RedFish Consulting" without actually owning rights to that name by having a DBA as RedFish Consulting?  

 

My friend has owned her company for 20 years and has been hiring independent consultants for various jobs, I've already made sure I will legally be an independent consultant (I will be doing updates and writing articles on her company web site, she will let me know what needs to be done/what she would like, and I will do it on my schedule however I choose to get the job done).  She says that every one of her consultants (except for one who formed an LLC) just gets an EIN and writes a business name down, and while that may protect her, it seems like that is opening the independents up for troubles because they are associating an EIN to a business they do not actually own the rights to.  However, I can't find anywhere on the IRS site (or anywhere else) where it says you *need* a DBA to link that company name line on the application with your EIN.

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Let me start with some background information. I assume that by “independent consulting” you would qualify as an independent contractor (IC) rather than an employee of your friend. IRS Publication 15-A discusses how the determination is made whether a person is an employee or IC for federal tax purposes. If you do not organize a separate entity (e.g. a corporation, some form of partnership, LLC, etc) for this activity and you are the only person involved in that activity (i.e. you have no partners), then you are a sole proprietor. 

 

When another business hires pays an IC at least $600 in the tax year for personal services provided by the IC, it must file with the IRS a Form 1099-MISC that reports to the IRS the total amount of compensation the business paid during that year. The Form 1099-MISC requires that the business report the IC’s taxpayer identification number (TIN). Failure to provide the TIN can subject the business to a penalty. 

 

Thus, when a business first hires an IC, the best practice is to get certification of the IC’s identifying information, including the IC’s TIN before any work is done unless the business is absolutely sure the amount of compensation will not reach $600. Form W-9 is generally used for obtaining the certification of this information.

 

When you are a sole proprietor (which includes LLCs with a single owner organized in the U.S. that have not made an election to be treated as a corporation), your Social Security Number (SSN) is your primary taxpayer identification number (TIN). Because of that, the IRS prefers that sole proprietors use their SSN on the Form W-9 and other TIN certifications. But as the instructions for the W-9 indicate, a sole proprietor may use the EIN as his/her TIN on the Form W-9 instead of the SSN. 

 

A trade name is a name that a person or entity uses to conduct business other than the person or entity's legal name. For example, if Marco Polo was a sole proprietor and ran a far east travel consulting business called Polo’s Travel Adventures then the name Polo’s Travel Adventures is a trade name because it is a name used for his business other than his legal name (Marco Polo). For a sole proprietor, the formal way to express the name of the business would be Marco Polo, doing business as Polo’s Travel Adventures (often shortened to Marco Polo d.b.a. Polo’s Travel Adventures). Thus, when someone says they have a DBA, what they really mean that they have a trade name.

 

Tradenames are not separate legal entities; they are just a name you use for a business that you conduct. Note that many states do require registration of trade names, but that is distinct from actually organizing a separate legal entity like a corporation for the business. The tradename registration just enables people to determine who it is that is behind  a particular trade name.

 

A person or entity may have any number of businesses and may have different tradenames for each one. So, if Marco Polo also had a publishing company he operated as a sole proprietor to publish travel stories, he might use the trade name “Exciting Travel Stories” for that business to distinguish it from his travel consulting business.

 

For the sole proprietor, the EIN is associated with your name, not whatever tradename(s) you use for the businesses you conduct. Thus, Marco Polo would use the same EIN for both his Polo’s Travel Adventures and Exciting Travel Stories businesses. This also means that you a person may obtain an EIN for business even if he or she doesn’t have any tradenames.

 

So, if Marco Polo was asked for a W-9 certification for personal services he provided for either business and he had an EIN, he may provide that EIN instead of his SSN on the W-9 and regardless of which of his two businesses the work would be associated, it would be the same EIN, since he only needs one EIN.

 

The bottom line here is that you may certainly obtain an EIN for the IC work you do (though you are not required to do that as a sole proprietor) unless you hire employees or maintain certain pension plans) and you don't need to have a trade name to get the EIN or to use it. No matter how many tradenames you do have, all you’d need is one EIN because the EIN is associated with you, not with any particular trade name. 

 

Note that if you earn significant income from the self-employment, you may need to increase your tax withholding at your job or make estimated tax payments to ensure you pay enough during the year to avoid getting hit with the penalty for failure to make estimated tax payments. Estimated tax payments are made using Form 1040-ES for sole proprietors. (Note that the 2014 version of Form 1040-ES is not yet available). 

 

IRS Publication 334 is a comprehensive publication that addresses most of the federal tax issues that a sole proprietor is likely to encounter. You might want to look through that if you start earning income from self-employment.

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Thanks Tax_Counsel, I appreciate the time you put into your reply and it cleared up a few murky areas for me.  I have read the IRS Publication 334 but I wasn't clear on the legality of getting an EIN and putting down a business name without getting a DBA.

 

My friend wants me to have an EIN and I'm okay with that (I'd rather not have my social security number floating around if I don't need it to be).  From everything I read, my EIN is just basically an alias to my SS# - it's linked to my name (and your reply confirmed that) and when I file annual taxes I'll attach a Schedule C, but when applying there's a place for a business name and when I fill out the W9 it also asks for a business name (which is what my friend wants me to have).

 

It is my understanding, from your post and from what I have read, that if I wish to associate an identifying business name with my EIN I can do so without filing for a DBA, as long as the business name contains part or all of my name as an identifier.  So, while I couldn't just call it "RedFish Consulting" without getting a DBA I could call it "My last name Consulting" without filing a DBA.  Am I understanding that correctly?

 

Thanks!

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It is my understanding, from your post and from what I have read, that if I wish to associate an identifying business name with my EIN I can do so without filing for a DBA, as long as the business name contains part or all of my name as an identifier.  So, while I couldn't just call it "RedFish Consulting" without getting a DBA I could call it "My last name Consulting" without filing a DBA.  Am I understanding that correctly?

 

 

Maybe not.

 

It appears that you would have to register your business regardless of the name you used.

 

See:

 

http://www.revenue.state.il.us/Businesses/register.htm

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It is my understanding, from your post and from what I have read, that if I wish to associate an identifying business name with my EIN I can do so without filing for a DBA, as long as the business name contains part or all of my name as an identifier.  So, while I couldn't just call it "RedFish Consulting" without getting a DBA I could call it "My last name Consulting" without filing a DBA.  Am I understanding that correctly?

 

 

First, the EIN application form (Form SS-4) and the W-9 have a space to put your tradename (DBA) if you have one. If you don’t have one, you may leave the space for the trade name blank. You are not required to have a trade name to get an EIN, and the IRS doesn’t care whatsoever whether you choose to have a tradename or not. 

 

What constitutes a trade name and whether you must register any tradenames are matters of state and local law. Quite often states will use a rule that a business name that contains your legal name isn't a tradename and thus no registration is needed. I'm not familiar with the IL rules on that, however, so I won’t comment on what would constitute a tradename in IL. Note that if you conduct business in some other state you'll need to be aware of the tradename rules in that other state.

 

When working for your friend, you don't even have any practical need to use anything but just your name since you aren't going to do any marketing or selling, after all. So, at least for that project I'd keep it simple and not get into using any kind of business name.

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It appears that you would have to register your business regardless of the name you used.

 

See:

 

http://www.revenue.state.il.us/Businesses/register.htm

 

That’s different from tradename registration. Many states and localities require persons conducting business in their jurisdiction to register or get a general business license.  That requirement has more to do with raising a little extra revenue than anything else. Whether the OP would need to this general business registration when providing consulting services to someone out-of-state is unclear to me from that IL state website information.

 

Note that if the business has a tradename a separate registration for the tradename will be needed for that. 

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I dug up this information http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2299&ChapterID=65, but I'll gladly admit that the amount of legal-speak in it made my head spin.  I think that it's saying that as long as I use my real name I can conduct business (So, I could call it "Sally Smith Consulting" or maybe even "Smith Consulting"), but honestly I'm not certain, can someone with a better head for legal-speak clarify?

 

This conversation has also brought up an interesting point - since I won't be doing business in my state (I reside in Illinois and will do the work from my home, but my one and only client will be my friend in Maryland), would it even be necessary to get a DBA in Illinois (if I needed one), or would I have to get it in Maryland? 

 

I'd happily contact someone in my state to discuss what I need to do to make this legal, but unfortunately I like in Chicago and getting into contact with anyone that works for the state for even the most basic information is a big ordeal.  I'll continue searching online for a list of states that don't require a sole proprietor to register a fictitious business name (as long as that name contains their own name), but in the meantime maybe someone can translate the legal speak in the link I provided to plain old English?

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I dug up this information http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2299&ChapterID=65, but I'll gladly admit that the amount of legal-speak in it made my head spin.  I think that it's saying that as long as I use my real name I can conduct business (So, I could call it "Sally Smith Consulting" or maybe even "Smith Consulting"), but honestly I'm not certain, can someone with a better head for legal-speak clarify?

 

What it is saying is that if you use any name other than your legal name to conduct business you must register that name with the county clerk in each county where you conduct business. That's the basic trade name registration requirement. The Cook County Illinois assumed named registration page web site explains the assumed name this way:

 

An assumed name is issued to any business entity that uses a name other than the name(s) of the individual(s) who own or operate the business. For example, a business called "John Jones, P.C." (i.e. owner's full name and title) does not have to file an assumed name, but "Jones Wrecking" does.

 

For reasons I won't go into here, the example is not particularly well drafted, but it does illustrate the basic rule that would apply for a sole proprietorship: the name “Sally Smith Consulting” would not be a tradename (assumed name) that requires registration if the person running the business is named Sally Smith, but the name “Smith Consulting” would require registration.

 

 

This conversation has also brought up an interesting point - since I won't be doing business in my state (I reside in Illinois and will do the work from my home, but my one and only client will be my friend in Maryland), would it even be necessary to get a DBA in Illinois (if I needed one), or would I have to get it in Maryland?

 

Well, as for doing business with your friend, you need not have any business trade name at all. But if you do use a tradename, since you are not using the name to “conduct or transact business in this state” (Illinois), you’d need not register a tradename there. (Yes, you'll be doing the actual work from Illinois, but that's not what the law is meant to cover.) You might, however, be required to register the tradename in Maryland. 

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Cripes!  I've spent the last few days calling various places and basically getting nowhere.

 

I called the Maryland Department of Assessment and Taxation and asked if I would need to file a Trade Name/DBA to do business as a sole proprietor in Maryland when using part of my own name as the business name, and if there were any other forms I would need to complete to make sure I was doing everything legal in Maryland.  I was told that that office couldn't give me any information regarding what is required by law in Maryland and could only help me access the forms I need after I determine which forms I need.  *bangs head on desk*

 

Then I called the IRS to speak to someone about being issued an EIN, hoping they could tell me what documentation, if any, would be required for me to put down a business name on the "business name" line on the EIN form or whether I could, as my friend says, just put down anything.  The IRS is only accepting applications for an EIN via the web and as such, I can't speak to anyone there.

 

So, I'm going to chalk this up to "Sally Smith Consulting" and if my friend is not comfortable with my EIN business name going under Sally Smith Consulting and not "Smith Consulting" or some other random name (she specifically asked me not to use my name for the EIN due to her previous tax problems with the IRS thinking her contractors were employees).  So, it'll have to be Sally Smith Consulting, I'll go ahead and get an EIN with that format for the business name, and I'll make 100% certain that the work I do is consulting work and won't make me fall under the category of an "employee". 

 

I'm curious though, what sorts of fines would a person doing consulting work as "Smith Consulting" face if their EIN was issued in that name where no DBA/Trade Name exists?  My friend has several people doing contracting and she tells them all to just put down any old name on the EIN application, as long as it's not their own.  Which covers her butt, but undoubtedly sets the contractors up for penalties if they get audited.

 

Thanks!

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It's kinda scary that you're contorting yourself over a practice your misguided friend desires when it protects her from diddly. 

 

I suggest that instead of calling a given governmental department, you first visit its web site.  (I may have missed the part where you mention doing this.) 

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