Are you a tax whiz? Do you genuinely enjoy helping your friends and family members do their yearly income taxes? If yes, then perhaps you should consider becoming a tax preparer and earning money by preparing tax returns for others.
Tax preparers generally prepare, file, and assist taxpayers with general tax forms. At the same time, they need to ensure that their clients’ obligations to the IRS are fulfilled and that they never assist in making any fraudulent tax returns.
Today, let’s look at the steps to become a legitimate, qualified tax preparer and make money working from home.
How to Become a Tax Preparer
Before you go off and start charging people for looking over their W-2’s and 1099’s, go over these basic steps first.
1. Learn all about tax preparation.
The good news is that you don’t need to have a bachelor’s degree to become a tax preparer. A high school degree or a GED is enough to get you on your way.
However, you do need to have above-average math skills to be able to self-train in tax preparation.
You can take tax preparation courses in your local universities or community colleges.
Or, if you’d rather learn about taxes in the comfort of your own home, the IRS offers Link and Learn Taxes, a Web-based learning program for individuals who want to know more about accurately filing their taxes or helping others do so.
There are also plenty of online courses on tax preparation, but they’re likely to cost you some money.
If you prefer to learn through reading, there are two books available on Amazon that are highly rated and recommended.
Both are free if you have Kindle Unlimited; otherwise, you can buy digital copies.
- Start Your Own Recession Proof Business – It appears to be more concise and to the point with 65 pages of actionable content.
- Taxes Made Happy – It’s 235 pages long, but reviews, while positive, seem to note there is a little more fluff than needed. I haven’t read either, but both look like they could be good places to start.
Grab one or both of those books to help you get started.
The best way to find out if you really like dealing with other people’s taxes is by working for a tax preparation agency such as H&R Block or Jackson Hewitt.
Such tax preparation agencies train their agents for several weeks before letting them deal with clients. In the process, you actually get paid to learn about tax law. Afterward, when you’re done with your training, you get actual hands-on experience with clients and real tax returns.
2. Get a PTIN and an EFIN.
The IRS states that all tax return preparers who are compensated for preparing a U.S. tax return that is then submitted to the IRS must obtain a Preparer Tax Identification Number (PTIN).
Failure to obtain a PTIN could lead to “the imposition of Internal Revenue Code section 6695 penalties, injunction, and/or disciplinary action by the IRS Office of Professional Responsibility.”
In other words, don’t mess with the IRS.
Besides, it takes all of 15 minutes.
Aside from a PTIN, it’s highly recommended to apply for an Electronic Filing Identification Number (EFIN).
In recent years, it’s become almost expected from tax preparers to be authorized e-file providers. In fact, nearly 90% of individual federal returns are now e-filed.
Thus, to be an authorized e-file provider, you’ll need to apply for an EFIN.
The application is a little more tedious than applying for a PTIN and requires more information and documents from you. You’d also be subject to a credit check, a tax compliance check, a criminal background check, and a check for previous non-compliance with IRS e-file requirements.
3. Consider becoming an enrolled agent.
An enrolled agent (EA) is someone who is qualified to represent taxpayers before the IRS.
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EAs are unrestricted as to which taxpayers they can represent, what type of tax matters they can handle, and which IRS offices they can appear to represent their clients. As such, this is the highest credential the IRS can award.
Being an EA shows a good impression to both existing and potential clients and helps you elevate your and your business’s credibility.
To be an EA, you need to have your PTIN, pass the Special Enrollment Examination (SEE), apply for enrolment, and pass suitability and criminal background checks.
4. Comply with your state’s licensing requirements.
If you’re a registered tax preparer, that is, you have a PTIN but you’re not a Certified Public Accountant (CPA), EA, or an attorney, you might be required to get a state-issued license or registration, depending on the state you live in.
Also, certain states post their own unique requirements for tax preparers, regardless of whether those preparers are dealing only with federal or both federal and state taxes.
Not registering with your state can result in fines.
For example, California’s Tax Education Council requires that its tax return preparers take a 60-hour Qualifying Education course and a 20-hour continuing tax professional education every year.
New York requires that paid tax return preparers register with the state and pay a $100 fee if they are preparing over 10 commercial tax returns in a single calendar year.
Start your research by searching your state’s name and “requirements for tax preparers” to find checklists of what you need to accomplish before getting started.
5. Select your tax software.
As a tax preparer, you’ll likely be depending a lot on your tax software for your workflow and for keeping your clients’ confidential and sensitive information secure.
Here are some considerations when choosing professional tax software to work with.
- Is it from the correct tax year?
- Can you install the software on your desktop, or is it only available online? Or does it come with both versions?
- Is it easy to use?
- Can it handle state tax returns?
- Does it support e-filing?
- Does it include understandable explanations of tax laws?
- Can you organize tax deductions easily?
- Does it have a guarantee?
- Can your provider also help you grow your revenue as you gain experience?
- Are customer support and tax filing assistance included?
- Does it offer the correct tax forms you need to support your clients?
- Does it integrate with other software you need to use?
- Is it cloud-based?
To start you off, here are some of the best and most highly recommended professional tax software you can get:
6. Assure your clients with a bond.
A tax preparer bond is a surety bond that guarantees that you will fulfill your obligations to your client; that is, prepare their tax returns correctly. It is meant to protect your clients in case the tax preparer commits fraud, negligence, or any other legal or ethical violation.
This is not the same as buying yourself insurance. A surety bond contracts you with your bond owner and assures your clients that you will not attempt to defraud or otherwise intentionally cause them financial loss.
Should you make an omission or error on a tax form, as long as you made an “honest” or “good faith” mistake, you’re liable for the tax deficit and any penalties or interest only. However, if it was proven that your mistake was due to malice, negligence, or because you were trying to commit fraud, you’re out the surety bond.
Not only are you liable for any errors but you might be subjected to penalties such as being banned to prepare taxes for a certain period of time.
Some states, such as California, require that their tax preparers purchase a minimum $5,000 bond.
7. Form an LLC.
It’s one thing to put up a bond to assure your clients that you’re an ethical tax preparer.
But what happens if you get into a real scrape and cost your clients thousands or even millions of dollars?
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By forming an LLC, you protect yourself and your personal assets from being seized in the event that you make a major tax boo-boo.
Forming an LLC is very easy, by the way.
Also, having those letters stand behind your business name helps vouch for your credibility as a professional tax preparer.
8. Market Your Services
Your best bet at drumming up business as a starting tax preparer would be to work your inner circle and offer discounts on tax preparation.
From there, ask your friends and family for word-of-mouth referrals.
Work those social angles to get your name out there.
Once the ball starts rolling, set up a website, ask for testimonials, and start advertising your services on local sites like Next Door or through Facebook ads.
Where Can I Get Experience As A Tax Preparer
If you want some experience as a tax preparer for a company first to get some experience before you go at it on your own, there are companies that are looking for part-time or full-time remote tax preparers to work for them or to be outsourced to other companies.
- Robert Half
- FACT Professional
- Edge Financial
- EP Wealth
- Creative Financial Staffing
- Thomson Reuters
Can you earn money by becoming a tax preparer?
Tax return preparation is a rather lucrative business; according to the Bureau of Labor Statistics, tax preparers earn an average of $23.82 per hour or a mean salary of $49,550.
This isn’t bad, considering tax preparation is seasonal work and typically spans just four months out of the year.
By offering to do other people’s taxes, you are helping them avoid stressful headaches in a necessary area that most people can’t even begin to understand.
This is a prime opportunity to make decent money on the side.
If being a tax preparer seems a bit daunting, another side job you may also want to consider is becoming a virtual bookkeeper. You may also dabble in it during the offseason. Some virtual bookkeeper jobs pay up to $50 per hour and you get to work from home.
You can also check out my guide on how to start your own bookkeeping business from home.
Are you already earning extra cash as a professional tax preparer? Share your experiences with us in the comments!