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How to start a tax preparation business from home

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How To Start A Tax Preparation Business From Home - ultimate step by step guide

Starting a tax preparation business from home can be a great way to supplement your income and and work from home. In this ultimate guide on how to start a tax preparation business from home, I will show how having the right tax preparation tools, resources, and knowledge on tax regulations is essential to set yourself apart from other tax preparers while also giving clients the confidence they need in your services.

How to start a tax preparation business from home

To get started with your tax prep business, make sure you are up-to-date with tax regulations and understand all tax credits that exist. Once you have the right knowledge, starting out as a solo tax practitioner by taking on smaller tax filings for friends and family is a easy way to start. As word of mouth spreads about how reliable your services are, so too will your client base! When it comes to starting a tax preparation business from home, having the right resources and information can be the key to success.

Table of Contents

Steps on How to start a home-based tax Business

The best way to start a tax preparation business from home is to follow these steps:

  1. Obtain a IRS Preparer Tax Identification Number (PTIN) 
  2. Get your Electronic Filing Identification number (EFIN)
  3. Decide on the tax niche you will specialize in
  4. Create a business plan
  5. Write up a written security plan to protect your clients personal data
  6. Register your business with the state and federal government 
  7. Apply for local licenses and permits for a home based tax prep business.
  8. Acquire the necessary education and training
  9. Obtain business insurance specifically for tax preparation businesses.
  10. Get tax preparation software that you are familiar with and learn how to use it
  11. Create a business website
  12. Open a business Bank Account
  13. Start marketing your tax prep business

1. Obtain a IRS Preparer Tax Identification Number (PTIN)

Obtaining a PTIN number from the IRS is an important process as it allows tax professionals to prepare tax returns, or provide tax related services for others. A Preparer Tax Identification Number (PTIN) is required for tax professionals such as Certified Public Accountants (CPAs) or Enrolled Agents and anyone completing tax forms for others on a business basis. 

The main steps involved in obtaining a PTIN from the IRS are filling out Form W-12, submitting the form along with other required documents, and paying the appropriate fee. Following successful submission of the online application, tax professionals receive their PTIN which then must be renewed annually by December 31 each year. 

By being aware of these steps and taking action to obtain a PTIN, tax businesses can be confident that they are adhering to all legal requirements and compliant when it comes to tax filing.

"Anyone who prepares or assists in preparing federal tax returns for compensation must have a valid PTIN before preparing returns. All enrolled agents must also have a valid PTIN"

IRS PTIN Checklist

2. Apply for your Electronic Filing Identification Number (EFIN)

Obtaining a Electronic Filing Identification Number (EFIN) is an important step for any tax business. A EFIN is a unique identifier provided to tax practitioners to help submit tax returns electronically via the IRS e-file program. To apply for a EFIN, tax professionals need to complete the online registration process and provide necessary tax documents that include their TIN or SSN number, business paperwork such as registered business name or jurisdiction information and other required documents. Once the application credentials are verified, tax professionals can get their EFIN in a matter of days. Having this six-digit identification number will help businesses leverage faster tax filing processes so they can focus on growing their business and taking care of their clients.

The IRS has 3 Steps to becoming an Authorized e-file Provider

  • Step 1. Access IRS e-file application
  • Step 2. Submit your Application
    • Supply identification information about your firm
    • Enter information about each principal and responsible official  in your organization 
    • Choose your e-file provider option
  • Step 3: Pass a suitability check

3. Pick a tax niche you will specialize in

Picking a tax niche to specialize in will give you a competitive advantage over the preparers who try to do everything. Having a tax niche to specialize in is important for tax preparation business owners. Specializing in a tax niche allows you to become an expert and to become an indispensable resource to tax-paying businesses and individuals. 

There are many different niches you could choose to focus on like:

  • A specific business type
  • A specific income range 
  • Single parents
  • Multi income earners in one household
  • Individuals with income in multiple states 
  • or just simple tax returns

Knowing tax law and its complexities is complicated, so having someone who has the experience and knowledge about that particular tax will be invaluable for most businesses. This can create a loyal relationship where you become the trusted tax advisor. Ultimately, picking a tax niche and specializing in it gives you an edge over other tax advisors as well as creates more opportunities for your tax business.

4. Create a business plan

Starting your own tax preparation business is a big step, one that shouldn’t be taken lightly. In order to position yourself for success and create a competitive edge over the competition, it’s important to create a comprehensive business plan. Outlining a business plan will help you identify any potential risks, come up with solutions in case they present themselves, and maximize your chances of success. 

Creating a business plan can also save you time and money by helping you spot areas where assistance is needed as well as allow you to determine accurate tax estimates before tax season begins. No tax preparation business should commence without crafting a solid business plan first.

5. Write up a Written Information Security Plan (WISP) to protect your clients personal data

Federal Law Requires Professional tax preparers to create and maintain a written data security plan. 

Having a WISP protects businesses and clients while providing a blue print in the event of a security incident. A WISP can also help if other event occur that can disrupt a tax professionals ability to conduct normal business, like fires, floods, tornados and theft. 

A security plan should include:

  1. Employee management and training
  2. Information systems
  3. Detecting and managing system failures.
The FTC requires each plan to include:
  • Designate one or more employees to coordinate its information security program.
  • Identify and assess the risks to customer information in each relevant area of the company’s operation and evaluate the effectiveness of the current safeguards for controlling those risks.
  • Design and implement a safeguards program, and regularly monitor and test it. 
  • Select service providers that can maintain appropriate safeguards. 
  • Evaluate and adjust the program considering relevant circumstances, including changes in the firm’s business or operations, or the results of security testing and monitoring.

6. Register your business with the state and federal government

Registering your business with the federal and state governments is an unavoidable part of starting a successful business. Not only is registering your business important to properly tax it, but also allows you to learn more about the laws and regulations that govern businesses as well. 

This can help you stay compliant with tax requirements and ensure that your venture will be successful in the long run. 

While the process might seem daunting at first, it’s key to make sure that your company follows all of the necessary protocols in order to protect its future success!

Federal Government:

You will need to apply for a federal Tax Id number and EIN number from the IRS. This is as simple a just filling out application with the relevant information. You can start your application here at the IRS for your EIN number

State Government:

Each state is going to be different in its requirements for registering a tax preparation business. You should contact your local represantative to determine the requirements. 

7. Apply for local licenses and permits for a home based tax prep business.

Securing the necessary permits and licensing to run a business from your home is an important part of starting up. Not only do tax requirements vary by location, but guidelines also differ in each state or municipality. 

It’s important to understand your local licensing and permitting obligations and regulations, so you can make sure you are compliant with all laws when running your home-based tax business. 

Additionally, many cities and states require businesses to obtain special business licenses before beginning operations. Therefore, it is important to research the process for applying for local licensing ahead of time in order to ensure all regulations are followed correctly and properly. 

Once these steps are completed, you can rest easy knowing that your licensing and permitting obligations are taken care of and you are legally cleared to begin running your business from home.

8. Acquire the necessary education and training

While the IRS doesn’t require specific training or a license to prepare taxes on behalf of others it is important to be aware of all current tax laws. This is where picking a niche can be helpful. When you only work with one type of business you can learn all the in and outs of what is important and what to look for when filing returns. 

The IRS does offer a voluntary annual filing season program tax course. The program is 18hrs of continuing tax education and contains all the updates and current changes to the tax law. 

Some states require more specific education to submit tax returns on behalf of others. It is important to check with each state to see what is required for CEU credits. 

9. Purchase business insurance specifically for Tax businesses

Obtaining the right business insurance is essential for tax businesses. Every tax business has its own particular set of risks, and it’s important to ensure that your tax practitioners are insured for those risks. You need to be able to trust that you have the most comprehensive coverage and to do so in an affordable manner. 

Working with professional brokers can help you research potential policies, evaluate coverages offered by different policies, compare rates across providers, understand tax incentives related to specific coverages, and make sure that your tax business is well covered.

Every state has different requirements when it comes to insurance and bonds. You need to check locally with your state to determine what is correct coverage and policy for you.

It is also important to get business insurance specifically for tax preparation business. There are specific things that must be taken into account that you need to be protected against like fraud, loss of income for the business you are filing for and reputation management.  

10. Purchase tax preparation software that you are familiar with and learn how to use it

A good tax preparation software is going to be one of the most important parts of your business and you need to know the in and outs of it. 

Professional software will allow you to submit multiple electronic returns without paying for each one and manage multiple clients easily. 

When choosing business insurance consider your clients. Are they typically small businesses or large corporations with complex tax returns. 

Its also important to take into account how many clients you expect to be servicing and how many returns you will be submitting electronically. 

The State that you do the majority of your business in will also influence what tax software you choose, for example are all you clients in one state or do you need software that will allow you to submit to multiple state all at once. 

Tax preparation software can help business owners save time and money. By using software, tax reports and forms can be generated quickly and accurately with minimal effort on the part of the business owner. 

11. Create a business website

Creating a website for your business is an incredibly powerful strategy to help gain more exposure and attract customers. It can be used to showcase products and services, provide additional information to potential customers, access valuable feedback from current customers, and establish trust with potential new clients. 

Having a website encourages people to visit your business and look further into what you have to offer. Additionally, if someone doesn’t know it exists or where it is located, you won’t be accessed by them. Creating an online presence for your business also allows for 24/7 accessibility; website visitors can find out about your business at any time of the day or night. 

Creating a business website is incredibly easy if you want to do it yourself. You can have your tax business website up and running in less than a day by using some templates following a youtube tutorial. 

The other option is go to Fiverr and pay someone less than 100 dollars to create a website for you. You can have simple 5 page website up and running very quickly

The pages you need to have on your website are:

Home page:

A website’s homepage is often the first impression made on a visitor, so it should be informative, well-designed, and easy to navigate. For businesses, this is especially important as it may decide whether or not the person clicking around decides to make a purchase. 

When deciding what to include on your website’s homepage it is best to highlight key elements of your business such as selling points or unique information about you as well as make sure contact information and other important information is easily accessible. 

It can also be helpful to showcase customer testimonials or reviews so that potential customers have an idea of the positive experiences others have had with your services. The website’s home page should provide visitors with all the pertinent information they need in order to learn more about your product/service while encouraging them to stay awhile and explore!

About you page:

A good About page is essential for any website. It is an opportunity to introduce yourself and your business to the world and to your potential customers. This is where you talk about your experience and why you are qualified to work on taxes for your clients. 

Crafting a creative, compelling, and professional About page will help promote yourself, your skills and experiences, and create a trusting relationship between you and visitors of your site. The About page should also include links or a contact form so that visitors can reach out to you with any questions they may have. With a solid About page as part of your website, you’ll be in great shape to make lasting connections!

Pricing Page:

A lot of business shy away from creating a pricing page but it ends up costing them business and clients. Why you may not have a way to tell a potential client exactly what you are going to charge you can give them some general ideas on what it may cost.
If you are going to charge by the hour you can put your hourly rate in and if it is going to be by the job you can put what is the typical range you would charge with a disclaimer that you need to talk to the business before you can give a formal quote. 
Having a pricing page also helps you not to waste your time with individuals who are not qualified to work with your or your ideal client. 


Contact us Page:

Make sure clients have a way to get hold of you from your website. You should have multiple ways like

  • Email 
  • telephone
  • A form they can fill out
  • facebook page
  • Mailing address

All this will add credibility to your business and show your potential customers that you are serious about providing them with the best service that they could receive. 

12. Open a Business Bank Account

A business bank account is a valuable asset for any business owner. Not only does it make record keeping and separating personal and business expenses easier, it adds credibility to your business. 

Customers feel better about working with you when they know that you have a legitimate business account rather than simply operating out of a personal checking or savings account. Furthermore, opening a business bank account can help you get better terms from lenders, since it shows that you understand the importance of managing finances responsibly and want to do so in the best way possible.

Having a dedicated business bank account will also ensure there are never any surprises or accidental withdrawals from your own funds. 

13. Start marketing your tax preparation business

Marketing your business can be a challenging and exciting experience. With the right approach, however, you can ensure that you are effectively promoting your business and reaching out to potential customers.

 Implementing new strategies to market your business can help bring more attention to it and increase conversions over time.

Your very first marketing strategy should be word of mouth marketing. Word of mouth advertising is one of the most powerful forms of promotion a business can receive. Studies have shown that word of mouth advertising significantly increases trust, credibility and prompts customers to act upon purchasing a product or service.

That’s why businesses who provide excellent levels of service and quality customer experience will be rewarded with powerful organic growth generated from satisfied, loyal customers spreading the word. 

A marketer’s job in emphasizing their current network of customer advocates boils down to making it easier for them to share positive experiences about their business. 

Step 1. Tell Everyone you know about you new business:

You should start by telling everyone you know about your new business and what you are doing. It is best to be very specific and tell them what your ideal client is so they can keep you in mind when talking to any of your potential customers. 

Business owners and your potential customers are always looking for referrals to someone they can trust to do their taxes and if you can get a referral you almost have a guaranteed sale. 

Step 2. Create a referral network:

Research your customers and determine who they get their advice from. Is it a banker, lawyer, accountant, or local advisory group. This where you should focus your time. Reach out to some of these individuals and introduce yourself, tell them what your specialty is, and why you are the best choice for there customers. 

This can lead to a steady flow of clients and referrals that can give you more business than you can handle. 

Step 3. Start a blog on your website and social media page:

Starting a blog on your website and social media page where you can share some tips and tricks for taxes can be a great way to get some business. If you talk about issues that are important to business owners and show them how to save some money, you are going to be perceived as an expert and your will gain more business. 

Step 4. Invest in some paid ads:

Paid advertising is still one of the best ways to get some business. There are multiple places to use paid advertising but the most effective right now are Google ads and Facebook ads. 

Both of these advertising programs will give you some customers but it takes some trial and error to get it right. 

Facebook advertising for tax preparation business:

Facebook advertising is quickly becoming one of the most popular methods of targeted marketing, due to its extremely wide-reaching potential. Though it may seem daunting at first, utilizing this powerful tool can be surprisingly simple with a few basic steps. 

Start by deciding who your ideal customer is and who you are targeting.  Then, craft an eye-catching ad that draws their attention to your home-based tax prep business in a unique way. Next, select any available options such as image or video ads, sponsored stories and page post ads, depending on the nature of what you’re promoting. Finally, decide how much you’d like to outlay for each separate ad campaign and choose whether or not you’d like them to show on a daily or lifetime budget basis. 

Facebook advertising is an invaluable source for connecting businesses with potential customers in today’s digital world.

Google AdWords

Setting up a Google AdWords campaign can be daunting but, with the right guidance, it’s well within reach. Start by logging into your Google Ads account, then work your way through each step: from targeting and budgeting to setting up your campaign structure and ad. Make sure you select the relevant keywords for success and review any potential negatives. Once you have written your ad copy and set landing pages for each ad group, it’s time to launch your campaigns. Finally, remember to monitor and adjust your campaigns frequently as necessary – Google AdWords allows you to make changes quickly in order to continue optimizing towards better results!

Should you work with accounting firms

This can be one of the biggest questions new tax preparation business face. On one hand accounting firms can be a good source of referral on the other hand accounting firms can be seen as competition. 

A good accounting firm that trusts you and is not in the business of filing tax returns can be a great source of referrals and even if they do file some tax returns it is likely that the accounting firm has clients that they turn away for one reason or another that may make great client for you. 

Who can be a tax preparer?

Anyone can be a paid tax return preparer as long as they have an IRS PTIN number. The IRS categorizes tax prepares into specific categories.

Unlimited Representation right: Enrolled agents, certified public accountants, and attorneys have unlimited representation rights before the IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment/collection issues, and appeals.

Limited Representation Rights: Some preparers without one of the above credentials have limited practice rights. They may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare the return in question. Tax return preparers with limited representation rights include:

Is special training required to start a home-based tax prep business?

No special training is required by the IRS at this time to become a professional tax preparer and to file federal taxes. You are required to obtain a PTIN number from the IRS and EFIN number. 

Every state has different requirements and you may have to have a specific amount of continuing education hours to file taxes with that state. 

It is recommended that you go continue to improve your education each year to stay on top of the updates to tax laws that are put into effect each year. 

How much does it cost to start a tax preparation business

It does not have to cost very much to start your own tax preparation business. All you really need to get started is some tax software with can be as little as $500.00 up to $10,000.00 dollars and a free PTIN and EPIN number and you can start submitting returns to the IRS. 

To submit returns to most states you will need to invest in business insurance and bonds that your state requires and licensing. 

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