How to start and run a successful tax office: a step-by-step guide
With a quarter of Americans relying on CPAs or tax lawyers for filing assistance, there’s no shortage of demand for tax preparation services. But how do you effectively tap into this market to start and run a successful tax practice?
In this article, we’ll walk you step-by-step through how to run a tax office, including:
- What education and training you need to become a tax preparer
- What licensing you need to become a tax preparer
- How to write a tax office business plan
- How to register a tax preparation and tax planning business
- How to set up your tax prep office
- How to organize your tax prep operations
- What technology you need for a tax office
- How to sell your tax prep services
- How to promote your tax practice
1. What education and training you need to become a tax preparer
Tax preparers need common-sense business savvy, and an understanding of how basic tax codes, deductions, and credits affect income tax returns.
Form 1040 tax returns provide the bread-and-butter business of most tax prep professionals, so mastering these is essential. But don’t stop there. Expanding your training beyond 1040s will help you serve a wider audience and generate more revenue.
You can dive into the latest tax prep training through webinars, online courses, audiobooks, or traditional classroom study. Consider both free and paid courses. Tax preparation software providers often offer free classes to help you stay current on changing legislation. It’s also worthwhile to subscribe to a continuing education platform.
2. What licensing you need to become a tax preparer
To begin selling tax preparation services, you must satisfy applicable federal and state licensing and registration requirements. Professional tax preparers are solely responsible for securing registration and licensing, and it’s not a one-and-done proposition. Requirements change frequently, and failure to abide by regulations can mean suspension and fines.
An initial compliance checklist should include:
- Current federal and state tax preparer licensing requirements
- Up-to-date continuing education requirements and deadlines (if applicable)
- PTIN (Preparer Tax Identification Number) registration
- EFIN (Electronic Filing Identification Number) registration
- Refund Transfers Compliance Training, if applicable
Review federal and state requirements annually to stay current with the latest legislation. Make sure you keep up with any continuing education requirements.
3. How to write a tax office business plan
Writing a business plan helps ensure that your practice stays on a profitable path. A well-designed business plan should include:
- An executive summary of the highlights of your plan
- A company description of how you will stand out in your market
- A market analysis of your customers and competition
- An organizational description of your company’s legal and operational structure
- A service line description of what you offer clients
- A marketing plan of your strategy for attracting and maintaining clients
- A funding estimate of any financing needs you anticipate
- A financial projection of your income, balance, and cash flow for the next three to five years
Planning these items on paper helps you refine essentials critical for business success, such as financial planning, operational management, and marketing. If you need help writing your business plan, the U.S. Small Business Administration provides local resources to assist you.
4. How to register a tax preparation and planning business
To file taxes for clients, you’ll need to register your practice. Exact registration requirements vary. At a minimum, you’ll need to obtain your:
- Federal preparer tax identification number (PTIN)
- Federal electronic filing identification number (EFIN)
Additionally, you’ll need to apply for state licensing if you practice in:
- California
- Connecticut
- Illinois
- Maryland
- Nevada
- New York
- Oregon
While not technically necessary, you may wish to register your business as a legal entity to gain legal or tax advantages. For instance, registering as a limited liability company (LLC) can protect you from personal liability for your company’s actions.
If you plan to operate as a corporation or partnership or hire employees, you’ll need to apply for an employer identification number (EIN). You can apply for an EIN if you operate as a sole proprietor or LLC, but it’s not required.
You may wish to set up a business bank account, though it’s not required. A separate bank account makes it easier to keep your personal and business finances separate, simplifying your bookkeeping and tax reporting.
5. How to set up your tax prep office
Your office can be one of your biggest business expenses. You can cut costs by using strategies such as sharing a coworking space, writing off your home office as a business expense, or operating out of a virtual office.
A virtual tax office solution that employs the cloud allows you to access tax returns and documents from any device or location. A secure client portal with remote electronic signature capacity lets you connect with clients anywhere.
6. How to organize your tax prep operations
Planning your operational procedures provides a basis for efficient workflow and effective automation. Tax preparation workflow can be divided into three main steps:
- Receiving client documents: requesting, receiving, confirming, and scanning documents and data.
- Preparing tax returns: processing and reviewing returns.
- Filing returns: reviewing final returns, filing returns, meeting clients, and receiving payment.
In addition to your tax preparation procedures, you’ll need procedures for managing other essential business operations, including:
- Accounting
- Marketing and sales
- Calendar management
- Communication
- IT
- Human resources (if you hire employees)
Use this framework to map the specific procedures your firm will follow, such as procedures for communicating with clients, using software, or processing tax forms. Document your procedures for reference and update your documentation whenever your procedures change. For instance, when you adopt new software solutions, you should update your operations manual to reflect any changes.
