Income Tax Preparation
Most people are surprised by the fact that you do not need a license at the federal or state level to do tax preparation. You also do not need to be a lawyer, CPA or certified tax consultant. However, some type of previous training in the accounting field along with a thorough understanding of the tax laws and regulations is extremely important. Most people who start an income tax preparation business have degrees in accounting or other financial field. Because the tax code is so complex, most business owners specialize with certain types of tax preparation. For instance, many tax preparation firms work mostly with small business owners and the Schedule C.
KNOWLEDGE, SKILLS AND ABILITIES:
You will enjoy a higher income if you become a certified tax preparer, also known as an “enrolled agent.” The enrolled agent (EA) designation is the only certification granted by the federal government. You will need to pass an exam and demonstrate proficiency in handling tax returns. EA’s are entitled to appear before the IRS at hearings to represent clients and may prepare tax returns for corporations, partnerships, trusts and estates. There are no academic requirements to become an EA. The exam, however is very difficult and is usually given over a two day period. You will also be required to complete seventy-two hours of continuing education courses every three years. Keep in mind, only about 30% of the applicants who take the EA exam actually pass!
Referrals are the best method of finding potential clients for tax preparers. Taxes are a personal matter, so people tend to feel more comfortable with someone that has been recommended by a friend or co-worker. Offering free tax seminars at your local library or community center is also an excellent way to find new business.
START UP COSTS:
You might want to invest in a good tax preparation software program that prints tax forms and sends electronic filings. Many tax preparers also purchase copy machines because they need to make many copies of forms and tax returns for clients. Of course, you will also need business cards and brochures.
The average tax service handles about 600 returns per year at around $200 per return. Most services charge per return ranging from $50 to $90 for a basic 1040. An important factor to consider is that tax preparation is seasonal work. A tax preparer’s high season is from January 1st to April 15th. Most individuals start thinking about taxes in February when all of their W2s have arrived. Small businesses think of taxed most in December and January, but many also have to file quarterly returns. Therefore, you will most likely earn the majority of your income in the first half of the year.
Start preparing for the EA exam by studying last year’s test and preparation study guides and decide what type of tax services that you want to offer. If you are going to specialize with individual tax returns, for instance, start making contact with local organizations like the Chamber of Commerce. For more information regarding merchant accounts, please see our Home Business Tips.
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