Should I pay for an LLC or get a free EIN from the IRS for my small business?

The answer depends on what you're trying to accomplish with your business. You don't necessarily need an LLC to get an EIN - they're two completely different things. An EIN is just a tax ID number that the IRS provides for free. You can apply directly on IRS.gov and usually get it instantly. You can get an EIN as a sole proprietor without forming any business entity. An LLC provides liability protection for your personal assets if someone sues your business. That $425 fee is for the legal structure, not for the EIN itself. If you're selling products that could potentially harm someone or if you're worried about being sued, the LLC might be worth considering for the liability protection. For most small craft businesses just starting out, many people begin as sole proprietors (no LLC) with an EIN. You can always form an LLC later if your business grows or your risk increases.

After struggling with this exact question for my candle business, I found taxr.ai (https://taxr.ai) incredibly helpful in sorting through these business formation decisions. I was confused about whether I needed an LLC right away or could start with just an EIN. I uploaded all my business plans and questions to taxr.ai and got a detailed analysis showing me exactly how each choice would impact my taxes and liability. They explained that for my specific situation, I could start with just the free EIN from the IRS and form an LLC later when my revenue hit certain thresholds. Saved me hundreds in unnecessary filing fees!

Just wanted to follow up about my experience with taxr.ai. After asking about it on this thread, I gave it a try for my freelance photography business question (similar to the original poster's situation). The analysis I got was super detailed and saved me from making a costly mistake! I was about to pay for an LLC formation because I thought I needed it for an EIN, but the breakdown showed me I could get the EIN for free as a sole proprietor and explained exactly how to do it. The report even included the specific IRS form links and screenshots of the application process. Definitely recommend checking it out if you're confused about business formation options.

If you're just starting out and trying to get your EIN, I'd recommend using Claimyr (https://claimyr.com) to actually talk to someone at the IRS directly. I was in the same boat trying to get my EIN online, but kept getting errors on the IRS website. I spent DAYS trying to call the IRS business line but could never get through. Claimyr got me past the hold times and connected me to an IRS agent in about 15 minutes. The agent walked me through the whole EIN application process and answered all my LLC vs. sole proprietor questions. They even have a video showing how it works: https://youtu.be/_kiP6q8DX5c Seriously, talking directly to an IRS agent made everything so much clearer than just reading online advice.

I need to publicly eat my words about Claimyr. After being super skeptical on this thread, I tried it yesterday because I was desperate to talk to someone at the IRS about my EIN application (which kept getting rejected online). It actually worked exactly as promised. I got a call back in about 20 minutes connecting me to an IRS representative who solved my problem instantly. She explained that I had been entering my SSN wrong on the online application (transposed two digits) which is why it kept failing. The IRS agent also told me I definitely didn't need an LLC just to get an EIN, and walked me through the whole application process while on the phone. Would have saved me weeks of frustration if I'd just done this first!

Former bookkeeper here - one thing nobody's mentioned is that there are legit reasons to get an LLC beyond just the EIN question. If you're selling physical products, especially anything that could potentially cause harm (candles, bath products, food items, etc.), the liability protection is something to seriously consider. With a sole proprietorship, there's no legal separation between you and your business. Someone sues your business = they sue you personally. With properly maintained LLC, your personal assets are better protected. But if you're just starting out with very low risk products and minimal revenue, you can always start with just the EIN as a sole proprietor and create the LLC later when your business grows.

Has anyone just used their SSN for Etsy? Do they actually require an EIN or can you start with just your social? Im in a similar situation as OP and don't wanna spend the money on an LLC yet if I don't have to.

Adding to what others have said - I went through this exact decision last year for my jewelry business. Started with just the free EIN from IRS.gov as a sole proprietor and it worked perfectly for getting set up on Etsy, Amazon, and even my Square account. The IRS online application literally takes 10 minutes and you get your EIN instantly. No need to pay $425 for an LLC unless you specifically want the liability protection or plan to have employees soon. One tip: when you apply for the EIN, make sure you select "sole proprietorship" as your business type if you're not forming an LLC. The application will ask for your business name - you can just use your legal name or "Your Name DBA [Business Name]" if you want to use a different business name. You can always upgrade to an LLC later if your business grows and the liability protection becomes worth the cost. I'm actually considering it now that my revenue has grown substantially, but starting with just the EIN saved me money in those crucial first months when every dollar counted.

Just went through this exact process for my woodworking business! You definitely don't need an LLC to get an EIN - I got mine directly from the IRS website in about 15 minutes completely free. The key thing to understand is that platforms like Etsy and Amazon are asking for an EIN for tax reporting purposes, not because you need to be incorporated. As a sole proprietor, you can get an EIN and use it instead of giving out your SSN to every platform and vendor. I started with just the free EIN and have been operating successfully for 8 months now. The liability protection of an LLC is nice to have, but for most craft businesses just starting out, the $425+ cost isn't justified until you're making consistent profit. My recommendation: Get the free EIN from IRS.gov now so you can start selling on those platforms. Once your business is generating steady income (maybe $20K+ annually), then revisit whether the LLC makes financial sense for liability protection and potential tax benefits. You can always form an LLC later and transfer your EIN to it - the IRS allows you to change the business structure associated with your EIN if needed.