Solution: Provide EIN
Overcoming Tax ID Requirements…
As you know a business PayPal account enables you to provide an EIN instead of your SSN when a Tax ID is requested by PayPal. The great thing about EINs is that they’re easy to acquire (everything can be done online) and you can have as many EINs as you want with usage of LLCs (discussed next).
Note: You should upgrade your PayPal account to a business account BEFORE it reaches it’s $20,000 in sales and 200 items limits. The reason to do this is that if you don’t and your account is limited, you will be required to call PayPal to upgrade to a business account.
How many EINs can I register? One per legal entity. We’ll discuss the different legal entities you can register and their pros and cons next.
Let’s get a few things out of the way first…
As far as legal entities and EINs goes, you register your legal entity (your business) at the state level (any US state). Once registered you can apply for an EIN which you can use with your PayPal account for verification purposes. Your PayPal business name must match your legal entity name (more on that in a moment). You should also have an accessible address registered to your PayPal account (more on that in a moment).
Important: Your PayPal Business Name or Personal Name (depending if you have a Limited Liability Company or a Sole Proprietors EIN) must match EXACTLY as the IRS has it. ONE LETTER OFF and it won’t be accepted. For example, “IBM” is NOT the same as “IBM, Inc.” If it does not match, the IRS will send a result of “no match” back to PayPal.
We’ll talk about how Sole Proprietors work and then we’ll discuss Limited Liability Companies
Note: I’m not a tax accountant. Please confirm with your tax accountant or do your own research regarding your legal obligations as far as opening a business online. The following is from my own personal experience and should not be taken as legal advice.
1. Sole Proprietors
While you can apply for an EIN as a Sole Proprietor, it’s usage for stealth is limited because the IRS will only grant you one EIN in your lifetime. After that you will need to open a Corporation or an LLC for more EINs (discussed next).
What is a Sole Proprietor? A sole proprietorship is the simplest business form under which one can operate a business. It simply refers to a person who owns the business and is personally responsible for its debts. Sometimes, this is referred to as a D/B/A (doing business as) such as John Smith d/b/a John’s Pizza Place.
As the a Sole Proprietor, you are the business legal entity. And because you are the business you do not have to register for anything. All you have to do is go to the IRS website and Apply for an EIN.
Note: Your name MUST match up to your name on PayPal in order for your EIN to be accepted (Sole Proprietor EINs). If you have an EIN registered to yourself as a Sole Proprietorship, then the IRS will verify that YOUR NAME matches the EIN they have on file. If it is your name, then it must match what is on your Social Security card.
2. Limited Liability Company
Alternatively there are legal entities in which you can register. Most people choose a Limited Liability Company. This is because they’re easier than Corporations to set up and there is less paperwork that has to be maintained and filed with the government each year.
What is an LLC? A limited liability company is the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.
LLL’s are registered with the state in which you want to set up the LLC, usually with the Secretary of State’s office. Registration fees vary by state and can cost from $50 all the way up to $800. If the fees in your state are reasonable, it is probably easiest to register in your home state. But you don’t have to register an LLC in the same state you plan to do business in (or where you have your business address) since this will be an online business. And some states have various advantages over other states. For example, in Nevada, there are no state income taxes. And in Wyoming, they have privacy laws that would make it virtually impossible for anyone to know that you are the owner of the LLC.
Registering Your LLC
The EASIEST solution is to register for an LLC through a legal service website such as the ones listed below… they handle all the paper work for you and get you setup quickly.
| Service Provider | Notes |
|---|---|
| MyCorporation | Streamlined LLC creation. MyCorporation also offers trademark filings/ copyright registrations/ DBA registrations/ registered agent services and more. |
| LegalZoom | With LegalZoom you can form an LLC faster and cheaper then it would cost an Tax Accountant to do it for you. You choose the state you want to form your LLC (I suggest Nevada) — fill out the forms and you're set. It's VERY easy. |
| INCFile | I have not personally used these guys but it was suggested by other members as another option. |
Where to establish your LLC? I personally like Nevada. The privacy laws there in regards to LLCs are excellent. You can also register a sole-owner LLC in Nevada. I suggest reading up on the best state to register your LLC if you have any doubts.
What if you need more than one EIN? You can create as many LLCs as you need. Each LLC is entitled to its own EIN which you can obtain free from the IRS website after you register your LLC.
Frequently Asked Questions
Does PayPal Look Up EIN Records? In my experience, eBay/PayPal does NOT look up corporate records, although they certainly could if they wanted.
Do Names Have to Match? Yep! When you provide an EIN to PayPal, they will verify it against IRS records. HOWEVER, they will only verify that the business name (which is your PayPal business name) given matches the EIN on file. The IRS does not give out ANY information about the business. The one exception is if you apply as a SOLE PROPRIETOR, then they will match YOUR NAME with the EIN. But they will STILL only verify what PayPal gives them. The IRS does not verify anything other than the BUSINESS NAME with an EIN or a PERSONS NAME with a Social Security Number. Remember, the IRS will verify that your PayPal BUSINESS NAME matches that of your LLC.
What About Taxes? If you get the EIN and comply with the Tax ID requirement. If/when you go over the 20k/200 transactions and they send you a 1099k at the end of the year. It has the PayPal owners name on the account not the business name. So keep that in mind. This is where using your real name or nickname comes in handy…!
Do I need a DBA? In regards to stealth, there is no benefit. As for operating your business, owning a DBA may be required (depending on your local laws) in order to do business online using a name that’s different from your own name. Other than that it does not benefit account creation or help in stealth in anyway. A DBA is just an alias, not a legal entity.
Does PayPal request my SSN? If you have an EIN on file, then PayPal will use it instead of your SSN for tax reporting. However, if PayPal is suspicious of your account, they have have been known to ask for a SSN even after an EIN has been supplied for verification purposes. Whether or not they do this depends on many factors: complaints, your refund rate, what you are selling, accusations of selling counterfeits and anything else that would lead them to believe that doing business with you is risky. While having an EIN on file with PayPal will not GUARANTEE they will never ask for a social security number for identification, it lessens the risk considerably.
Next we’ll talk about selling under the radar!
