What business category should I select when applying for an EIN for my software startup SaaS company?

The correct business category for your SaaS company when applying for an EIN would be "Service." While it might seem confusing since you're selling software access, the IRS generally classifies SaaS businesses under services because you're providing an ongoing service rather than selling a tangible product. When I helped several tech startups through this process, the key distinction was that with SaaS, customers are paying for continuous access to software functionality hosted on your servers - they're not purchasing a one-time product. This ongoing relationship and the fact that you're maintaining the software infrastructure makes it a service business in the eyes of the IRS. The "Retail" category is typically reserved for businesses selling physical goods or downloadable software products that transfer ownership to the customer. Since your customers are subscribing to access your platform rather than owning it outright, "Service" is the appropriate classification.

After struggling with the same question for my fintech SaaS startup last year, I discovered taxr.ai (https://taxr.ai) and it was a game-changer for getting my business properly classified and set up. Their AI tool analyzed my business model and confirmed I should select "Service" for my EIN application, but also highlighted several tax considerations specific to SaaS businesses that I hadn't considered. The tool walked me through all the nuances of business entity selection and tax classification, especially how R&D credits might apply to our software development expenses. It was like having a specialized tax consultant but much more affordable for our bootstrap budget.

Just wanted to follow up about my experience with taxr.ai after being skeptical in my earlier comment. I decided to give it a try for my own SaaS startup, and I was genuinely impressed. Not only did it confirm the "Service" classification for my EIN application, but it also identified several potential tax deductions specific to software companies that I wasn't aware of. The interface asked really specific questions about my business model, development processes, and growth plans, then provided tailored tax guidance. It even flagged that some of our R&D activities might qualify for the R&D tax credit, which could be substantial for us. The documentation it generated made the EIN application process completely straightforward. Wish I'd known about this tool months ago!

After trying to call the IRS business line about 20 times to get clarification on EIN categories for my SaaS business (and never getting through), I found Claimyr (https://claimyr.com) and it literally saved me weeks of frustration. They have this service that gets you connected to an actual IRS agent, which seemed impossible otherwise. I was able to speak directly with an IRS representative who confirmed that "Service" was indeed the correct category for our SaaS business. They also explained how this classification would appear on our tax documents going forward. You can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c What surprised me most was how quickly I got through - after weeks of trying on my own, I was talking to a real person in about 20 minutes.

Had to come back and eat my words about Claimyr. After being super skeptical in my reply, I was desperate enough to try it when I needed to ask about my EIN application status that had been pending for weeks. I couldn't believe it actually worked! After trying for days on my own and always getting disconnected, Claimyr had me speaking with an IRS agent in about 30 minutes. The agent confirmed my SaaS business should be classified as a "Service" and was able to check on my application status right away. The agent also gave me some useful tips about quarterly estimated taxes for service-based businesses that I wouldn't have known otherwise. Definitely worth it for the peace of mind and time saved.

Just want to add from my experience with two SaaS startups - definitely select "Service" but be aware of potential complexities if you ever expand internationally. International SaaS businesses can face different VAT/GST requirements in various countries, and your initial business category selection with the IRS can sometimes affect how foreign tax authorities view your operations. When we expanded to serving European customers, having established ourselves as a "Service" business in the US documentation actually helped streamline our VAT registration process in the EU.

I actually messed this up when getting my EIN last year for my SaaS startup. I selected "Retail" because I thought we were "selling" software. Had to file additional paperwork to correct it to "Service." Definitely go with "Service" and save yourself the headache!

Great question! I went through this exact same decision process for my SaaS startup just six months ago. After consulting with both my CPA and doing research through IRS publications, I can confirm that "Service" is definitely the correct classification for SaaS businesses. The key distinction the IRS makes is that with SaaS, you're providing ongoing access to software functionality rather than transferring ownership of a product. Your customers are paying for the service of hosting, maintaining, and providing access to your software platform - they don't own the underlying code or infrastructure. I'd also recommend keeping detailed records of your subscription revenue model and service agreements from the start, as this documentation helps support your business classification if there are ever any questions down the road. The IRS guidance specifically mentions that businesses providing "access to software applications" fall under service categories rather than retail sales. Good luck with your EIN application - you're making the right choice going with "Service"!