Obtaining a tax ID number (EIN)
Before we get started, do you have your assumed name for your business yet? If not, go back and do that first.: Registering a Business Name (DBA)
A tax ID number is what is used for your business. It is like having a social security card number but for your business. This helps identify your business and will allow you to work with vendors, hire employees, setup business bank accounts, etc.
You need this number if you are going to be doing business. This allows your business to be legal and collect federal taxes and such. You also need it for paying your business taxes. These are not the only reasons but just some large ones.
You will want to use an EIN for business instead of your social security number. This is for privacy reasons and so you don’t get your identity stolen. Your identity can be stolen a lot easier if you use your social security number for business.
If you use a social security number for your business instead of an EIN you also have now made yourself personally liable for any business issues such as being sued or fined or any other legal issues that happen to the business. Also if you use your social security number this can and most likely will pierce the corporate veil if you go the corporate route. Just get an EIN and use it for the business.
One main perk of having an EIN (Employer Identification Number) is that you can change when sales tax happens. You can buy items from vendors large and small without paying sales tax on those items. What happens is you then apply sales tax when you sell the item and the end user pays that sales tax. This is done because otherwise the sales tax would be done twice.
See also: License, Permits, and Tax Requirements