Steps to Starting a Tax Business

Check out these steps to starting a tax business and learn more about building your own tax company.3 min read

What are the considerations and steps to starting a tax business?

  • Learn about tax preparation and visit the many tax businesses online to inquire about tax preparation classes. Some are free or charge from $100 to $300 with employment offer and lasts about 34 weeks.
  • Gain experience as a tax preparer. Many times the tax school also offers temporary work placements and is a great opportunity to gain experience preparing taxes for various people.
  • Apply for a Preparer Tax Identification Number (PTIN) which is issued by the IRS to conceal the personal social security number.
  • Choose tax software which can cost up to $600. Software programs like Intuit and Tax Works are a few to choose from.
  • Register your tax business with the state. If you plan on hiring tax preparers, make sure your business structure suits this strategy such as a limited liability, corporation or sole proprietorship, and create the business documents. Your Articles of Organization should be filed in the state your business is in.
  • Look for office space as it looks more professional to clients than working from home. You can also use a tax deduction in your personal tax return. You can choose from a work from home, retail office or cooperation with another business.

Tips to Remember When Starting a Tax Business

  • Take it slow - before venturing on your own, you can consider working for one of the larger tax preparation businesses. In this way, you can sharpen your software skills and learn how to work productively. You can also take on some clients in the weekend and if you meet their needs, it's a good head start for when you start your own business.
  • If your business is in Oregon or California, you're required by law to have business license with the state.
  • If you want to hire other employees, get an Employment Identification Number from the IRS.
  • Join a professional association for tax preparers, like the National Association of Tax Preparers.

Main Things to Consider for a Home-Based Tax Business

  • Sign up for a tax course whether it's a beginner or advanced one.
  • Join other tax groups online like a tax business Linkedin groups.
  • Join the National Association of Tax Professionals (NATP)
  • Sign up with IRS as a Tax Preparer – Make sure to receive your Preparer Tax Identification Number (PTIN)
  • Get your IRS Electronic Filing Identification Number (EFIN) in order for you to start filing online for clients. An EFIN takes about 8 to 12 weeks to process. Before you can e-file returns, you have to go through a process to begin to be an Authorized online preparer with the Internal Revenue Service.

The registration is done with the Internal Revenue Service in three steps:

Step 1: Open an IRS Account for e-services – To start your application, you have to fill out and be accepted to e-file through the Internal Revenue Service. The Internal Revenue Service can take a while to go over and accept your data, therefore it's best to plan ahead of time.

Step 2: Send in Your Application – Once you're given the approval to send in tax forms online, you can head over to your online account and prepare an online form to begin working as an e-file preparer. Organize yourself in advance since the time of approval can last more than 30 days.

Step 3: Go Through a Check for Suitability – Once you send in your form and any other documents, the Internal Revenue Service will do a suitability check of your tax business and the people written in your form as main or responsible persons. This can be a credit, tax compliance check, a background check, and to make sure there is no former mishaps with e-file regulations. Once you are accepted, you'll get your EFIN.

Buy software to prepare taxes.

What Kind of People Are Ideal for a Tax Business?

Parents and early retirees find it convenient to open a tax business as it complements their lifestyle. You have more freedom to take holidays and can also take time off. Financial service people and retired military can add tax preparation to their services.

If you need help with starting a tax business, you can post your legal need on Legal Marketplace's marketplace.

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