As a business owner, you want to ensure you have everything you need to run your business. Certain steps are required to officially consider yourself a business. When it comes to taxes and business credit, there are certain numbers you want to have on record. Two of those numbers are your EIN and DUNS numbers. Although both of these are nine-digit numbers used to identify a business, they are not the same and are used for different purposes.
What is a DUNS Number?
A Data Universal Numbering System (DUNS) number is linked to your credit profile and used by Dun & Bradstreet for business credit reporting purposes. Lenders, suppliers and potential business partners refer to your business’s DUNS Number to help determine if your company is creditworthy and/or financially stable. That means your DUNS number is linked to your credit score. If you intend to apply for business credit at some point, you will want a DUNS Number
How a DUNS Number Benefits Your Business
DUNS Numbers are not automatically issued when you become a business; you have to apply for one. Applying is free at Dun & Bradstreet. Hopefully, you will apply because having a DUNS number comes with many benefits.
Establishes a Universal Business Identification. Your business DUNS number is the universal standard for business identification. This numbering system identifies, validates, and links to more than 265 million businesses worldwide. When a business gets assigned a DUNS number, the company has been thoroughly verified and passed D&B’s strict validation process.
Used to Help Build Your Credit Profile. Your DUNS number is directly linked to your company’s business credit report with Dun & Bradstreet. Once your company gets assigned a DUNS Number, it can establish its own business credit file and business credit score. Business credit is important to your business, and with an established business credit file, suppliers, lenders, card issuers, leasing agents, potential business partners, or other companies can assess the creditworthiness and/or financial stability of your company.
Allows You To Bid on Government Contracts. Every year the federal government purchases more than $300 billion of products and services. For a business, having the government as a customer can be a tremendous opportunity. But to bid on contracts or receive grants, local, state, and federal governments require a business to have a DUNS number.
Secures Your Personal Credit. When you don’t have a DUNS number associated with your business credit profile, any credit you get for your business will be through your personal credit. That can harm your personal credit if you make late payments or keep high amounts of business debt.
A DUNS number is different from your federal tax ID (EIN) number. A DUNS number is used for business credit reporting purposes, whereas an EIN is issued by the IRS and used for tax identification purposes.
What is an EIN Number?
An Employer Identification Number (EIN), also known as a Federal Employer Identification Number (FEIN), or Federal Tax Identification Number (FTIN), is like a Social Security number for your business. Your EIN allows the Internal Revenue Service (IRS) to identify businesses for tax reporting.
The IRS has specific, established rules that determine when a business needs to apply for an EIN. Some of those rules are:
If your business has employees.
If your business is a partnership or corporation.
If your business files excise taxes.
If your business withholds taxes for non-wage income paid to a nonresident alien.
Regardless of what kind of business you have, it’s usually a good idea to apply for an EIN. If you need steps for starting your LLC, visit here. You can apply for one through the IRS. There are multiple ways your business can benefit from having an EIN:
File Business Tax Returns. If your business is a partnership, a multi-member LLC, or if you have employees, an EIN is needed to file taxes. Every financial decision made on your business’s behalf will be tied to its EIN. If you apply for one as soon as possible, you won’t have to deal with the risk of missing tax deadlines.
Hire Employees. If your business has employees, you will need to get an EIN since a multi-member LLC does not file or pay taxes as the LLC. Instead, each employee will file their taxes separately under the LLC’s 1040 form. Employers need an EIN to set up payroll, and the IRS will use the business’s EIN to track payroll taxes. An EIN is necessary to register for your State's employer taxes, like paying for workers’ compensation and withholding income taxes on behalf of your employees.
Helps Avoid Identity Theft. Applying for an EIN instead of using your Social Security number will keep your personal identity more private, reducing the risk of identity theft. It’s less likely for someone to break into your account when you keep business finances and personal finances separate. If you’re a sole proprietor without an EIN and you continue giving out your social security number to clients or vendors, you’re putting yourself at a higher risk.
Open a Business Bank Account. Most banks require an EIN to open a business banking account. A business bank account is another way to keep your personal finances and professional finances separate. It will simplify the process of tracking and managing your professional expenses; as a result, you’ll be able to make more efficient budgeting plans for your business. While the EIN is used to establish your business accounts, it’s the DUNS number that will be associated with your business credit.
EIN vs. DUNS
By now, you should see the difference between an EIN and DUNS number. You should also see the importance of having both. An EIN is issued by the IRS so a business can open a business account and file business taxes. A DUNS number is issued by Dun & Bradstreet, and it helps businesses create and build their business credit.