Despite getting easier all the time thanks to tax preparation software, there are still many people – mostly those who aren’t confident dealing with taxes or have more complex tax situations – that turn to tax preparation professionals to do their taxes. For this reason and because our tax system won’t be getting any simpler in the near future, tax preparation is a thriving business.
Not surprisingly, more and more people are deciding to help others complete their taxes with each passing year – only to fail miserably because they have no idea how things work in the tax prep market. However, if you’re savvy enough to follow just a few steps, then you’ll soon find yourself full of clients eager to get their taxes prepared with the help of your business.
The Steps of Kickstarting a Tax Prep Business
Obtaining a Certification
Reading on the subject matter in books like Crysta Tyus’s How to Build a Successful Tax Practice or Mario Constanz’s Taxes Made Happy is a good start, but in order to be able to prepare taxes legally you’ll need the proper certification. This can be obtained by enrolling in college or, better yet, a specialized tax preparation school that can give the necessary insights on taxation within weeks and also may provide an internship position to acquire the proper experience.
Additionally, these courses can be taken at well-known tax companies like Jackson Hewitt or H&R Block, too, who may even immediately offer a job to freshly certified professionals – but this often comes at the cost of signing a contract with a non-compete clause, which is the very thing you want to avoid if your goal is to start a similar business of your own.
Determining the Business’s Purpose
One of the most important things to decide on is whether the newly established company will provide its services on a frequent basis – for instance, by offering financial advice throughout the year – or it will instead be a seasonal business focusing entirely on the busy tax season. Once that’s out of the way, it’s also smart to determine who the business will be for and how you can address them in a convincing manner.
Although offering your services to both individuals and businesses alike may seem like a good idea, it’s better to start small with a strong online presence via social media, a personal website, or accounts on freelancer sites and then expand later on once you have enough referrals and are confident enough to take on bigger gigs.
The business’s structure also needs to be determined before officially registering it with the state. It’s completely up to you which business type fits your needs the most, but founding an LLC or a corporation is probably the best choice as it automatically registers the business with the state.
Establishing the Business
In addition to registering the business with the state from which it’ll operate, the new entity also has to comply with the requirements of the IRS. As such, you will need to register for a variety of state and federal taxes and apply for both an electronic filing identification number (EFIN) and a preparer tax identification number (PTIN).
There are certain instances where the business owner will also need to acquire an employer identification number (EIN) – such as when a company has employees – but for the most part this step can be omitted. However, to be sure of whether an EIN is required, it’s best to visit the IRS’s website and answer a simple quiz.
Use Online Software
Finally, there are two essential things needed for a tax prep business. The first is an online accounting tool that is capable of storing client information, preparing invoices, and managing the company’s own books. The second is even more important, though, and that’s tax preparation software or, to be more precise, its professional equivalent.
Although these programs are similar to those provided for individuals and businesses intending to do their taxes on their own, professional tax prep solutions like TaxAct Professional or Intuit’s ProConnect Tax Online are even more advanced. They can manage virtually any tax situation, sporting enterprise-grade features that include client portals – through which clients can complete various tasks like uploading and signing documents, paying for your services, or receiving a digital copy of their returns – and in certain cases can even connect the tool that they are using to your online accounting software for more efficient form filling.
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