What business category should I choose for EIN application when starting a SAAS software company?

What about if the software is downloadable though? I'm in a similar situation but our users download our software first and then pay a subscription. Would that still be classified as "Service"?

For downloadable software with a subscription model, it would still be classified as "Service" in most cases. The key factor is that your primary business model revolves around ongoing access and service rather than a one-time sale of a product. The IRS looks at the core nature of your business activity. Since your customers are paying for continued access to use the software (even if initially downloaded), rather than purchasing a perpetual license outright, you're providing an ongoing service. This distinction is what places most modern software businesses in the "Service" category.

How exactly does taxr.ai work? I'm in a similar situation but my SAAS has both subscription and one-time purchase elements. Would it be able to handle my somewhat hybrid business model?

Sounds interesting but feels like overkill for just answering a simple business category question. Couldn't you just call the IRS directly and get a definitive answer from them? I'm skeptical about these third-party services.

The system works by analyzing your business documents and providing specific tax guidance based on your actual operations. For hybrid models with both subscription and one-time purchases, it actually breaks down the percentage of each revenue stream to help determine your primary business activity. Rather than being overkill, it saved me tons of time and uncertainty. I tried calling the IRS first, but spent hours on hold and the agent I eventually spoke with gave me very general answers. With taxr.ai, I uploaded our business plan and financial projections and got specific guidance tailored to our actual business model, not just generic advice.

Wait, how does this service actually get you through to the IRS faster? The wait times are ridiculous for everyone - how could they possibly get you through quicker than anyone else?

This sounds like a scam. There's no way to "skip the line" with the IRS. They're notoriously understaffed and everyone has to wait. I'm calling BS on this.

It's not about "skipping the line" - they use technology to continuously dial and navigate the IRS phone tree for you. Basically they have a system that keeps trying the IRS lines and when they finally get through, they connect the call to you. You don't have to sit there listening to hold music for hours. The service just handles the waiting part for you. Once they get through, you're talking directly with an actual IRS agent - it's not some intermediary answering your questions. They just solve the painful waiting process.

Yes actually! We're planning to offer implementation support and some customization options for enterprise clients. Good point about keeping the accounting simpler - that's definitely something I hadn't considered. Did you have to make any amendments to your original EIN application when you added those service components?

You wouldn't need to amend your EIN application when adding additional service components later. The initial business category selection on the EIN application is primarily to help the IRS classify your business, but it doesn't lock you into only that specific activity. Many businesses evolve over time, and the IRS understands this. As long as your primary business activity remains generally within the service sector, which it would with both SAAS and implementation services, you're fine keeping everything under your original EIN with the "Service" classification.

While it might not have caused problems yet, selecting the wrong business category could potentially trigger unnecessary scrutiny during an audit. The IRS might question why a "retail" business is reporting primarily service-based income. Better to get it right from the start!

Thanks for sharing your experience! This is really helpful to hear from someone who's actually been through the process. Did you run into any complications or questions from the IRS after selecting "Service"? I'm curious if there were any follow-up requirements or if the process was straightforward once you made that selection. Also, how did your accountant help guide you through this decision - did they have specific criteria they used to determine service vs retail for SaaS businesses?