ITIN Application: Why It's Needed for Foreign Entrepreneurs in the US
A foreign entrepreneur uses an ITIN in place of a Social Security Number to submit taxes or access loans when their immigration status hasn't been finalized. Learn what you need for an ITIN application.
Many immigrants aren't aware that they can or need to file an ITIN application.
A foreign entrepreneur uses an ITIN in place of a Social Security Number to submit taxes or access loans when their immigration status hasn't been finalized. The IRS uses the tax number to process tax returns and record payments.
By having the number, they can legally operate a business, comply with Federal and State regulations, and reap the benefits of using the number to run their business.
Confusion abounds about the 9-digit Individual Taxpayer Identification Number (ITIN) which is used by small business owners who are foreigners living in the US. However, this post clears up any questions and uncertainties you might have.
If after reading this you still need more information or a step-by-step guide to show you how to apply, you can check out Camino Financial’s article: “5 Steps to Apply for an ITIN”.
Who needs an ITIN?
In general, if you’re a non-resident, resident aliens, spouses, and dependents, you can apply for an ITIN if you aren't eligible to apply for a social security number (SSN).
According to the IRS people that need to apply for an ITIN are:
- Nonresidents that need to file a tax return
- A nonresident claiming a tax treaty benefit
- Nonresidents, like students, professors or researchers, claiming an exception or filing for a tax return
- Resident alien who file tax returns
- People who are dependent or married to nonresident alien visa holder
- People who are dependent or married to a citizen/resident alien
Why do foreign business owners need an ITIN?
Because immigrants are gainfully employed, the IRS set up the system in 1996 to report income since all wage earners must pay Federal taxes. An ITIN demonstrates that foreign entrepreneurs comply with Federal law, contribute to the economy, and documents their physical presence in the US and work history.
Even though you haven't been approved for citizenship in the US, you can earn income.
By submitting paperwork for an ITIN, you can declare taxable income, file a tax return, and pay taxes you owe.
As an immigrant, you can set up a business entity and apply for business licenses. The number allows you to obtain capital to invest in your business even when you don't have legal immigration status.
Keep in mind, an ITIN doesn't make you eligible for social security benefits, authorize you to work in the US, or qualify you to take an Earned Income tax credit for dependents. An ITIN isn't used to prove your legal status and can't be offered as an ID for non-tax purposes.
The perks of an ITIN
With an ITIN you can open business checking and savings accounts at a bank to start a business. By doing this:
- You can keep your personal and business expenses separate.
- By having a bank account, you won't need to keep large amounts of cash with you, which could be dangerous.
- Your accounting will be simplified when it's time to complete your tax return.
- You also protect your assets should someone bring a lawsuit against the business.
- Also, remember that a bank will most likely require an ITIN for any individuals that have access to any of your business accounts.
An ITIN also allows you to apply for loans when you need more working capital. With a loan you can:
- purchase equipment
- make improvements to your place of business
- invest in any area of your business
Some lenders even accept an ITIN to obtain a mortgage for real estate.
What's more, when repaying loans or making purchases using credit cards you’ll build a credit history.
Just so you know, should you get an SSN in the future, make sure to notify credit bureaus, creditors, and the IRS of the change. You won't lose the credit history you created under your ITIN.
ITIN equals DBA
A foreign entrepreneur who has an ITIN can use the number to register their business with the government by setting up a DBA (doing business as). You can use a business name to run your business rather than your own name.
Being able to set up a DBA helps you brand your business to reach more customers.
What documents do you need to apply for an ITIN?
Before you fill out a W-7 ITIN application, you'll need at least one of these documents. Officials at the IRS will use these records to verify your identity.
- Identification card (such as a U.S. Citizen Immigration Services - photo ID)
- US driver's license or one from your country of origin
- Passport (must have a date of entry stamp showing entrance into the US)
- Visa issued by the U.S. Department of State
- Official birth certificate for children under 18 years of age
- An ID card from a US state
- American or foreign military card
- Foreign voter's registration card
You can submit a tax return the same time that you apply for an ITIN. Once you submit your application, if everything is in order, it takes about six weeks to receive the ITIN, which is just a number issued by the IRS.
Do you need help with your ITIN application?
If you feel you need help with the application, you can contact an IRS-authorized Certified Acceptance Agent.
Some of them provide free assistance while others may charge a fee.
Since the agents receive training directly from the IRS, they can answer any questions you have and make the process less complicated.
For your convenience, they can verify supporting documents so you can take your original documents with you after meeting with them. Upon verification, they send copies to the IRS.
Don’t waste any more time, apply for an ITIN
Foreign entrepreneurs can apply for an ITIN and stay compliant with government regulations while running a successful business.
If you're wondering whether the information you provide the IRS is safe, please know that the IRS adheres to privacy protection laws and doesn't use an ITIN to enforce immigration laws.
As you can see, there are numerous benefits to having an ITIN as outlined above.
So, what are you waiting for? Why not fill out an ITIN application today?