Many people see tax preparation as a seasonal type of business, but it is something that can be run all year long. There’s one basic need that everyone must meet in order to know how to start a tax preparer business: mathematics. If you can’t do basic math calculations, then tax preparation isn’t for you. If you’re good at math, love accounting, and don’t mind delving into the legal language of the annual tax code, then a tax preparation business could be the perfect thing to start.
There are some specific steps that you’re going to need to follow to get your business off the ground. Here’s everything that you will need to know to get your next business opportunity started.
1. You will need to have a tax preparation identification number.
If you’re ready to get started on tax preparation, then the first think you’re going to need to do is register for a TPIN. That stands for “tax preparation identification number.” In the United States, you will need to fill out IRS form W-7P in order to receive the legal ability to prepare tax documents for others. This applies for anyone in every jurisdiction. There are no exceptions to this rule.
2. You may need to complete certain certification courses.
Some jurisdictions require you to have a specific numbers of tax preparation courses under your belt in order to qualify as a business. In the state of California, for example, you must be registered as a certified tax preparer before you can take any money for services rendered. To achieve this registry, you would need to put in a specific amount of class time hours to qualify.
3. Are you qualifying under a home office stipulation?
The IRS may require that you meet clients at a home office. If this applies to your business, then you will need to meet with a minimum amount of clients at your own home to prepare their taxes. This doesn’t mean that you can’t also open up a commercial location for additional exposure. It does mean, however, that you’ll likely need to have a business license for both locations since you’re conducting business in both places. That’s why many tax preparers with the home office stipulation will just dedicate part of their home, if zoning permits, as a personal store front.
4. You may need to have several types of insurance.
Tax preparation happens in the financial sector and this means that any errors you may make, no matter how inadvertent, could be incredibly costly. Imagine costing someone over $2,000 in refunds on their return due to a simple math error? It’s possible and although people can refile to get that refund, they can also pursue you for damages. That’s why it is a good idea to have a surety bond and other types of optional insurance protecting you in case an error is made.
5. Your business will need to pass a full suitability check.
The IRS will conduct what is called a “suitability check” on all applicants who wish to receive a TPIN. This checks the credit scores, tax compliance, and criminal backgrounds of all employees who are associated with a business. There is also a check on non-compliance when it comes to e-filing. If you’re approved, then you will receive an acceptance letter and your official identification number. E-filing requires an EFIN [Electronic Filing Identification Number], so make sure to submit your application for both services. The TPIN must be requested before the EFIN.
If you do owe taxes, have defaulted on student loans, have several outstanding collection accounts, or other financial issues, there is a good chance that you won’t pass the suitability check. Consider this before completing the full application process.
6. E-filing taxes for customers means having access to tax preparation software.
Tax preparation software is not cheap. It’s also something that needs to be updated every year because of the changing tax codes, which means you may need to shell out some cash for the updated annual version as the start of every tax season. The type of taxes that you intend to prepare will help to dictate what kinds of software that you’re going to need. Basic returns generally have cheaper software packages. The best profits, however, come from the extensive business returns that require multiple forms and all of the bells and whistles that are available.
7. Now you’re ready to begin securing clients.
Why are people going to use your tax preparation services when for less than $100 they could file their own taxes? Because you’re a tax expert, that’s why. Your extensive knowledge of the tax code must be seen as a valuable asset. In the world of tax returns, that means enhancing the amount of a tax refund that someone receives or reducing their overall tax liabilities. You can do that through networking or having your family and friends become your brand ambassadors, but first-hand testimonials from customers about how great you are will always bring home a sale.
8. Set yourself up for year-round business.
If you want to keep your tax preparation business active all year long, then you’re going to need to get to know the self-employed community that’s in your area. These are the folks that may need to set up tax payments, have quarterly filings done, or need assistance with their tax documentation that needs to be sent out to contractors with whom they are working.
9. Keep walking the beat.
Tax preparation is a business that will build up slowly over time. Don’t be discouraged if you only have a few clients during the first busy tax season that you work. Consistency and quality will market themselves for you and that will allow your business to slowly build, thrive, and grow exponentially.
Tax preparation might not be for everyone, but it could be for you. By knowing how to start a tax preparer business, you’ll be able to earn some money doing something you love while becoming your own boss. What could be better than that?