Contributed by Itsasecret
I have been self-employed for over 15 years. I have also been a victim of identity theft.
When I first became self-employed, I took classes about owning a small business and found out from experts what it was going to mean to be self-employed. Among other things, I was told that having a business license and an EIN would help defend against any IRS audit challenging whether I was in business or just writing off hobby losses. It shows you think of yourself as a business.
A business is set up to make a profit. The IRS takes a dim view of people who set up businesses for the purpose of losing money so they can reduce taxes on other income.
Income reported under EIN’s and SSN’s is treated exactly the same on your tax return, but only the SSN is used for your personal credit report. Nobody with your EIN can get a credit card in your name with it. With your SSN, they CAN. This is the number one reason to get an EIN: To protect yourself from identity theft.
When we sign up with 100 or more MSC’s, we are putting our personal information into the hands of people whose idea of security could be using their cat’s name as a password on an easily-hacked database. Sure, most MSC’s are major corporations and have IT professionals securing their data. But how do you know they ALL do? Are you willing to “assume” your info is safe just because the MSC assured you it was? Databases get hacked all the time.
My identity theft occurred when I bought my first cell phone at Circuit City and some employee there made a copy of my application. And that was a major corporation I could touch and see and should have been able to trust with my information. We are trusting our data to anonymous strangers on the internet, some of which aren’t even in this country.
Get an EIN. Minimize potential regret and help show the IRS you’re not in this for the french fries, but are actually trying to make a profit from your shopping business.
Editors note: We are not tax professionals, so please understand that this is not professional advice.