How to start a tax business

Starting a tax preparation business allows you to capitalize on your financial expertise while enjoying the flexibility of self-employment. With the right planning and execution, you can establish a thriving practice that serves clients’ needs and generates a steady income stream.

The U.S. tax code’s complexity means there will always be demand for knowledgeable tax professionals who can navigate the ever-changing regulations. Launching a tax business from home offers an appealing opportunity to enter this growing industry on your own terms.

If you possess strong math skills, keen attention to detail, and a drive to assist others, a career as a professional tax preparer may be an excellent fit. This comprehensive guide outlines the key steps involved in starting a tax preparation business from home.

What is a Tax Preparation Business?

A tax preparation business provides assistance to individuals and businesses in preparing and filing their tax returns. Tax preparers help clients understand tax regulations, identify deductions and ensure that their returns are accurate and complete.

Key services tax preparation businesses offer include:

Individual tax return preparation: Assisting clients with Form 1040 and associated schedules for personal income tax filing
Business tax return preparation: Preparing returns for various business entities such as sole proprietorships, partnerships, LLCs and corporations
Tax planning and advice: Providing guidance on tax-saving strategies, deductions, credits and quarterly estimated tax payments
IRS representation: Communicating with the IRS on behalf of clients in case of audits, appeals or collections issues

While specific training isn’t required, tax preparers should have in-depth knowledge of tax laws and stay current with annual changes to the tax code. Attention to detail, strong communication skills and a commitment to client confidentiality are also important.

Why Start a Tax Preparation Business?

The tax preparation industry has experienced steady growth in recent years and shows no signs of slowing down in the foreseeable future. According to the

Global Strategic Business Report, it is expected to grow at a 4.3% CAGR through 2030. At the same time, tax codes grow increasingly complex each year, increasing demand for experienced tax preparation specialists.

This presents an appealing opportunity to capitalize on by launching a home-based tax business. You can take advantage of this growing industry and start generating income on your own terms.

How to Start a Tax Preparation Business

Starting a tax preparation business requires several key steps. First, obtain a Preparer Tax Identification Number (PTIN) from the IRS. This identifies you as a tax return preparer and is required to file federal tax returns for compensation.

Next, choose a business structure such as a sole proprietorship, LLC or S-corporation. Register your business with your state and obtain any necessary local licenses or permits.

If you plan to file 11 or more returns, you’ll also need to obtain an Electronic Filing Identification Number (EFIN) from the IRS. This allows you to e-file tax returns on behalf of your clients.

Set up a dedicated home office that is professional and distraction-free. Invest in a reliable computer, high-speed internet, secure file storage and essential office equipment like a printer and scanner.

Research and invest in professional tax preparation software to boost your efficiency and accuracy. Popular options include Drake Tax, ATX and TurboTax.

Establish your fee structure based on your credentials, experience and the complexity of the returns you’ll prepare. Consider your target market and competitor pricing in your area.

Finally, market your new business to attract clients. Build a professional website highlighting your services. Leverage social media to connect with potential clients. Network through local business groups and consider partnering with complementary businesses for referrals.

Get Registered
Set Up Your Home Office
Choose Tax Preparation Software
Determine Your Services and Pricing
Implement Security Measures
Obtain Business Insurance
Market Your Business

1. Get Registered

Before you can start preparing tax returns for clients, you must register with the IRS. Here’s what you need to do:

Obtain a PTIN

A Preparer Tax Identification Number (PTIN) identifies you as a tax return preparer. You must apply for a PTIN online and renew it annually to legally prepare federal tax returns for compensation.

Register Your Business

Choose a business structure such as sole proprietorship, LLC or S-corporation. Register your business with your state by filing the required documents. If you plan to prepare 11 or more returns, you must also obtain an Electronic Filing Identification Number (EFIN) from the IRS to e-file tax returns on behalf of your clients.

Obtain Licenses and Permits

Depending on your location, you may need to apply for local business licenses or permits to operate your tax preparation business legally. Check with your city and county government offices for specific requirements in your area.

2. Set Up Your Home Office

Creating a professional workspace is key to running an efficient tax preparation business. Here’s how to set up your home office:

Designate a dedicated workspace

Choose a quiet, distraction-free area in your home to serve as your office. This could be a spare bedroom, a corner of your living room, or even a converted closet. Make sure it’s separate from high-traffic areas and offers privacy for client meetings.

Invest in reliable technology

A fast computer with ample storage, high-speed internet, and secure cloud backup are essential. Consider purchasing a multi-function printer/scanner/fax machine to streamline document handling. Invest in a comfortable, ergonomic chair and desk to promote productivity during long work sessions.

Prioritize security

Tax preparers handle sensitive financial information, so data security is paramount. Use strong passwords and encryption software to protect digital files. Store physical documents in a lockable filing cabinet and shred anything you no longer need.

Stock up on supplies

Keep your office well-stocked with basic supplies like paper, pens, calculators, folders, and labels. Consider purchasing a desktop organizer to keep everything tidy and within reach.

3. Choose Tax Preparation Software

Selecting the right tax preparation software is key to running an efficient and accurate tax business. When evaluating your options, consider the types of returns you’ll be preparing and the specific forms and schedules you’ll need.

Look for a user-friendly solution with robust features like:

E-filing capabilities: Streamline your workflow by choosing software that allows you to e-file federal and state returns directly.
Automatic calculations: Minimize errors and save time with software that automatically calculates figures based on entered data.
Built-in error checking: Catch mistakes before filing with software that flags potential errors or missing information.
Client organizers: Simplify the process of gathering client data with customizable organizers and questionnaires.
Integration with other tools: Look for software that integrates with your existing accounting or practice management systems.

4. Determine Your Services and Pricing

Deciding what services to offer and how much to charge is a crucial step in starting your tax preparation business. Here are some key considerations:

Choose Your Service Offerings

Will you focus on preparing individual tax returns (Form 1040), business returns, or both? Offering a mix can diversify your client base, but specializing in a particular area like small business taxes or rental properties can help you stand out in a crowded market.

Consider a Niche Focus

Developing expertise in serving clients in certain professions (e.g., freelancers, real estate agents) or with specific tax situations (e.g., expat taxes, cryptocurrency) can differentiate your business and justify premium pricing.

Research Competitor Pricing

Look at what other local tax preparers charge for similar services. Consider factors like their experience, credentials, and target market when comparing rates.

Set Your Fee Structure

Based on your research, establish a pricing model that reflects the value you provide. This could involve hourly rates, flat fees per form, or tiered packages based on complexity. If you’re just starting out, you may need to price competitively to attract clients. As you gain experience and build a reputation, you can command higher fees.

5. Implement Security Measures

As a tax preparer, you handle sensitive financial information that must be protected. Implement these security best practices:

Strong passwords: Use complex, unique passwords for all devices and accounts. Consider using a password manager to generate and store secure passwords.
Encryption: Enable full-disk encryption on your computer and encrypt sensitive files before sending them electronically. Use secure file-sharing services that offer end-to-end encryption.
Physical security: Store paper records containing client information in a locked, fireproof filing cabinet. Limit access to your home office and keep it locked when not in use.
Secure backup: Regularly back up client data to a secure cloud storage provider. Look for services that offer automatic backups, version history, and multi-factor authentication.

Follow IRS guidelines for creating a written data security plan. This documents the steps you take to protect client information and helps demonstrate your commitment to data security.

6. Obtain Business Insurance

Tax preparer professional liability insurance protects you if clients sue over errors in their returns. These policies cover legal defense costs and any settlements or judgments against you.

General liability insurance is also smart to have. It provides coverage if a client gets injured at your home office and files a claim. For example, if someone slips and falls, this policy would cover their medical expenses.

An experienced insurance agent can review your specific business risks and recommend appropriate policies and coverage limits for your tax preparation business. They’ll also help you compare quotes from multiple carriers to find the best rates.

Expect to spend between $400 to $700 per year for a basic professional liability policy. General liability insurance averages around $500 annually for a small business. The peace of mind these policies provide is well worth the cost.

7. Market Your Business

Once your tax preparation business is set up, you need to get the word out to attract clients. A multi-pronged marketing approach works best:

Build a Professional Website

Create a website that showcases your services, credentials, and experience. Include information about your background, the types of returns you prepare, and your pricing. Optimize your site for search engines by incorporating relevant keywords and creating valuable content like blog posts or tax tips.

Leverage Social Media

Set up business profiles on platforms like Facebook, LinkedIn, and Twitter. Share helpful tax-related content, engage with your followers, and run targeted ads to reach potential clients in your area.

Network Locally

Join your local Chamber of Commerce and attend networking events to meet other business owners. Develop relationships with complementary service providers like bookkeepers, financial advisors, and real estate agents who can refer clients to you.

Distribute Marketing Materials

Create eye-catching flyers and business cards that highlight your services and contact information. Post them on community bulletin boards, leave them at local businesses, and hand them out at events.

Encourage Referrals

Word-of-mouth is a powerful marketing tool. Provide exceptional service to your clients and ask them to recommend you to friends and family. Consider offering a referral discount or incentive to encourage them to spread the word.

Google My Business is a free listing that can help your tax preparation business show up in local search results and on Google Maps. Claim your listing, complete your profile, and encourage satisfied clients to leave reviews.

Reasons to Start a Tax Preparation Business

Starting a tax business allows you to leverage a growing demand for tax preparation services. With an ever-increasing complexity in tax laws and a steady increase in the number of small businesses and freelancers, your services can fill a significant need.

Steady demand: Tax preparation services are in demand year-round as individuals and businesses look to optimize their tax situations.
Fulfilling work: Helping clients navigate tax laws and save money on their taxes can be very rewarding.
Flexible schedule: Running your own tax preparation business means you can set your hours and work as much or as little as you want.
Potential for growth: As you gain experience and build your client base, there’s significant potential to expand your services and increase your income.

Tips for Growing Your Tax Preparation Business

Growing a tax preparation business involves continuous learning, adapting to new tax laws, and providing exceptional service that encourages referrals.

Invest in Professional Development

Stay ahead in the tax preparation industry by constantly updating your knowledge. Participate in workshops, webinars, and conferences to learn about the latest tax laws and software.

Expand Your Services

Consider broadening your services beyond tax preparation. Offering bookkeeping, financial planning, or business consulting can provide additional value to your clients and generate more revenue.

Focus on Client Experience

Deliver outstanding service to encourage repeat business and referrals. Quick response times, thorough explanations of tax issues, and friendly service can set you apart from competitors.

Leverage Technology

Use technology to streamline your workflow and improve efficiency. Online scheduling, secure document sharing, and electronic filing can enhance the client experience and free up your time for more clients.

Consider Hiring Staff

As your business grows, you might need to hire additional tax preparers, bookkeepers, or administrative staff to help manage the workload and expand your capacity to take on more clients.