Within the past few years, the tax industry has seen a stark incline of new tax professionals opening their own businesses. There are an estimated 140,000 tax businesses within the US alone, with an average market growth of 2% each year. There are many benefits to starting your own tax business, such as minimal start-up costs, reduced tax liability, and a personalized work schedule. Similar to any business, starting a tax business can come with its own challenges and restrictions. While starting your own tax business can seem daunting, it may in fact, be easier than you think.
Who Can Start A Tax Business
One of the biggest misconceptions associated with starting your own tax business is that individuals are required to have an accounting degree or educational achievement in order to become a tax preparer. This is not, however, always the case. The IRS allows those with an IRS Preparer Tax Identification Number to prepare federal tax returns for clients. According to the IRS, those with a PTIN number are authorized to prepare federal tax returns; however, tax professionals will have differing levels of skills, education, and expertise. Readers may be wondering what the difference is between tax preparers and tax professionals. A tax professional or tax accountant has different qualifications and experience levels than an income tax preparer. While both are qualified to assist individuals with preparing and filing their income tax returns, tax professionals will have either Unlimited Representation Rights or Limited Representation Rights and provide more long-term assistance to their clients. Additionally, tax professionals or CPAs are qualified to help prepare income taxes for compensation without being subjected to the IRS guidelines put in place for income tax preparers.
While the IRS does not require any specific training or licenses to become a tax preparer with a PTIN number, the IRS does ask that all tax preparers have a working understanding of the US tax code. In order to better educate themselves, the IRS does ask tax preparers to enroll in a tax course such as the IRS voluntary Annual Filing Season Program. The program is popular among tax preparers and includes 18 hours of tax continuing education and a six-hour federal tax law refresher course. After completion, the IRS will issue an Annual Filing Season Program Record of Completion certificate to all program graduates as well as list all graduates on the agency’s online database of tax preparers the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.
How to Obtain a PTIN Number
PTIN Numbers or Preparer Tax Identification Numbers must be obtained by all tax professionals who prepare federal tax returns for compensation. The unique nine-digit number allows the IRS to identify the professional tax preparer who aided in each income tax return. PTIN numbers expire annually, and tax preparers must apply to renew their number each year six weeks before the December 31st expiration date. In order to obtain a PTIN number, individuals must submit a PTIN application to the IRS and possess:
Social Security Number
Previous year’s individual tax return
Explanations for felony convictions
Explanations for problems with your US individual or business tax obligations
If applicable, any U.S.-based professional certification information
Each state has its own requirements that tax preparers and professionals must comply with in order to prepare tax returns. In order to start a tax business, some states will require specific education, training completion, or registration requirements before being able to offer service as tax preparers. For the state of California, all non-credentialed tax professionals must complete a 60 hour course offered by a California Tax Education Council approved provider within 18 months of offering tax services and purchase a $5000 tax preparer bond from a surety agent to register as a tax preparer in the state of California.
Electronic Filing Identification Number (EFIN)
Those within the tax industry will probably recognize this requirement. Individuals who file more than 11 tax returns must do so electronically, according to the IRS. In order to file electronically, tax professionals must obtain an EFI and become an Authorized e-File Provider. This will often require submitting an application to the IRS and will include a tax compliance check, criminal background check, credit check, and a check for prior IRS e-File non-compliance. If a business exceeds a certain size, the IRS may ask that tax professionals obtain an Employer Identification Number or EIN as well.
Work with a Third-Party Tax Preparation Company
Individuals with little tax experience looking to open their own tax office are encouraged to seek out a third-party tax preparation company. From obtaining a PTIN number to IRS registration, third-party tax companies will help individuals through all the complexities of starting their own tax business. In addition to helping tax preparers open their tax business, third-party tax preparation companies will continue to help businesses flourish by offering financial support, high-end tax software, marketing plans, and staff support. For many years, businesses like Prestige Tax Office have supported first-time tax business owners by offering a wide variety of business opening packages. Each package provides individuals the tools they need to open their own shop with the confidence of an experienced business owner.
The Prestige Tax Office’s Tax Business Package includes:
- IRS Registration: Assistance with PTIN and/or EFIN application
- Professional Tax Software, all 50 states, and back years upon request
- Each Tax Return Reviewed by Our Staff
- Tax Preparer Training on Professional Tax Software
- Year-Round, Live-Person Assistance
- Bank Products Allowing You to Print Checks and Issue Debit Cards On-Site directly to your customers
- Up to $6,000 Cash Advance.
- Personal Coach
- Assistance with Marketing Plan
- Market Analysis
- Marketing Materials available for purchase
- Electronic Record Storage for your Tax Business
- One Touch English-to-Spanish Conversion