How to Start a Tax Preparation Business
2 days ago · Getting into the tax business is extremely affordable and absolutely doable whether you choose to start as a side business or go all in. Minimal start-up costs. The costs to get started with a home-based tax business are quite nominal. Assuming you already have a computer and printer, you can start a home-based tax business for less than $2, Mar 16, · From our detailed analysis, it is envisaged that you will need $3, to start a small-scale tax preparation business (excluding home tax preparation business). For a medium scale tax preparation business $12, and $49, for a large scale tax preparation business. Choose a Suitable Location for your Business.
There's one important difference in tax filing between a home business and a business located outside the home: one form is used to calculate the space allocated to your business, so you can deduct the costs of using this space from your business tax return. A business needs a place to be, even an online business. And the expense for that place is a legitimate business expense, deductible on your business tax return. Small business owners who work from their homes can claim a tax deduction for business use of the home, on Form To complete Formyou will need to gather some paperwork for the calculation.
Before you begin to gather the paperwork to complete this form, you must be sure that the area or areas of your home meet the strict IRS use test. This area must be your principal place of businessand it must be used both regularly and exclusively for business purposes. If you don't use this area regularly, or you use this area of your home for anything other than business, even what is the qa process in software testing that use is only once or twice a year, it doesn't meet the "regular and exclusive use" test, and it cannot be used as a tax deduction.
You may be able to use the simplified method for calculating your home space deduction. If you have a small space square feet or lessyou can do a simple calculation to get the amount of the deduction. If you can't do the simplified option and you don't feel comfortable completing Form yourself, gather up all of this information and take it to your business tax preparer.
To complete Formyou will need to have an estimate of your business income, so you should have a rough estimate of your Schedule C net income for your small business taxes before you begin. Your first task is to calculate the percentage of your home that is used for your business. To calculate the percentage use, you will need to know:. Use these areas to get a percentage of home use. You will be using this percentage for expenses below. You will need to gather documents to substantiate your home business expenses for the year:.
Gather up all of this paperwork before you start working on Formor take it to your tax preparer. Once you have completed the form, you add it in the appropriate place on your business tax return. For Schedule C, you add the total amount of the deduction on Line The information in this article is general and is not intended to be tax or legal advice. There should not be an assumption that these expenses will be deductible on your business tax return.
Each business situation is different, and tax laws change frequently. Consult with a tax advisor before submitting your business taxes. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights.
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Start A Tax Preparation Business In Your State
How to a Start Tax Preparation Business of Your Own State, Local and IRS Requirements. First, register your business with your state. This can be done relatively easily; Preparer Tax Identification Number (PTIN). Individuals who charge any fee for tax return preparation services are Electronic.
Do you already have experience in preparing tax returns as an employee or temp for a tax agency and wish you had more control over your schedule? Or are you looking to capitalize on your math abilities and attention to detail on your own terms?
Either way, you may be wondering how to start a tax preparation business from home. With the complexity and ever-changing nature of the U. They serve an essential need. Operating an in-home tax preparation business provides an income opportunity that allows you to enjoy the flexibility that comes with being your own boss.
Because much of the work is seasonal, it opens the door to the exploration of other revenue-producing activities during other times of the year. As with any type of business venture, there are legal and accounting details to think about, so reach out to an attorney and accountant for professional guidance on those issues. Many people mistakenly believe that it requires an accounting degree or another type of educational achievement to become a professional tax preparer.
However, tax professionals have differing levels of skills, education, and expertise. The primary difference between the different types of tax practitioners is their representation rights before the IRS beyond the preparation of tax forms. These tax professionals may represent their clients on any tax matters, including audits, appeals, and payment or collection issues.
Preparers without the credentials of enrolled agents, CPAs, or attorneys have limited practice rights. The IRS categorizes these tax professionals as either:. A Preparer Tax Identification Number PTIN must be obtained by all tax professionals who prepare all or substantially all of a federal tax return for compensation. Because PTINs expire on December 31 of the year in which they are obtained, tax preparers must renew them annually.
Applicants who apply online can obtain a PTIN in about 15 minutes. The program requires a tax preparer to complete 18 hours of tax continuing education, including a six-hour federal tax law refresher course. Putting in the time and effort to hone your knowledge and skills will help you serve your clients better. Some states have specific education, training, and registration requirements that tax preparers must comply with.
In California, for instance, aspiring non-credentialed tax professionals must enroll in a hour course by a California Tax Education Education Council CTEC approved provider within 18 months of offering services as a tax preparer. There are also continuing education requirements and renewal fees annually. Tax preparers must renew their PTIN annually. Note that PTINs are unique to the individual. So, if you grow your business and hire other people to prepare tax returns for clients, they must obtain their own PTINs.
Think about what you would like to call your business. You can do a free corporate name search through the CorpNet website. Note that most states will hold the name for between 30 and 90 days. Think carefully about the business entity type you choose for your tax preparation operation. Selecting to form an LLC or incorporate your business requires filing registration paperwork with the state.
And opting to be taxed as an S Corporation involves filing a special tax election form with the IRS possibly with the state, too. Establishing those business structures comes with some costs and paperwork, but they offer some advantages over operating as a sole proprietorship or general partnership.
If a tax preparer operates as an LLC or corporation, it will need to designate a Registered Agent in the state s where it conducts business. As a registered agent in all 50 states , CorpNet can fulfill that requirement for you no matter where your home business resides in the United States. A DBA also known as fictitious name must be filed if the business owner wishes to use a name other than one that contains their first and last names in its title.
Often, banks will not open a business bank account unless a business owner or company has an Employer Identification Number EIN. Also, the IRS requires businesses that hire employees or that operate as a corporation or partnership to obtain an EIN. CorpNet makes the process even easier by handling the EIN online application on behalf of business owners.
Doing this is essential for keeping your business and personal financial and tax records separate. And, if a business is structured as an LLC or corporation which are separate legal entities from their owners , they must have a dedicated business bank account.
Some locations do require licenses and registrations that non-credentialed tax preparers must have to perform their work in states that have set requirements for tax professionals. Tax preparers must research what they need to do. We can identify the required licenses and permits, and we can prepare and file the application forms to receive the necessary licenses. Tax preparers who will file 11 or more tax returns, must submit them electronically.
Note that the IRS says the process can take up to 45 days. Also, some states may require that a tax preparer complete a separate application for state income tax return e-Filings. Which software solution will be ideal for an in-home tax preparation business? That will depend on the types of tax returns the tax preparer will handle, the volume of returns, and budget constraints. Price points and the approaches to pricing vary, with most companies offering several options.
Tax preparers handle sensitive information. Your customers will expect you to have measures in place to protect that data. Creating a data security plan is one part of the new Taxes-Security-Together Checklist. Business owners can limit their personal liability for the debts of their business by forming an LLC or incorporating their company.
Another way to minimize liability risks is through obtaining insurance policies that will protect business and personal assets. No matter how skilled or experienced a tax preparer is, the potential for errors exists. A tax preparer professional liability insurance policy can help protect them if clients would bring suit against them for errors, omissions, or honest mistakes.
Also, a general liability insurance policy can offer peace of mind. Even though slips, falls, and other accidents happen rarely, they do occur! This applies to tax preparation businesses from home, too. Consider these marketing and advertising assets and tactics for spreading the word about your business:. Tax preparation businesses must follow through with some ongoing compliance obligations.
The exact responsibilities will depend on the business structure and business location. Fines, penalties, and even suspension or administrative dissolution forced closing of the business by the state could happen if a company ignores its compliance duties. Also, ask your attorney and accountant to verify what you must do and when deadlines occur. Some are specific to tax preparation businesses, and others are suitable for all types of companies. Now that you have a lot of food for thought in front of you, contact my team at CorpNet as you take your next steps towards starting a tax preparation business from home.
Also, ask about our CorpNet Partner Program. It gives you a way to earn additional income for your business by referring clients to us or reselling our formation and compliance filing services.
Stay Signed In. Create Account Forgot Password? Previous Next. View Larger Image. Who Can be a Professional Tax Preparer? Tax Preparers with Unlimited Representation Rights Before the IRS Enrolled agents individuals who have passed an IRS exam and demonstrated proficiency in federal tax planning, tax return preparation for individuals and businesses, and representation Licensed certified public accountants Licensed attorneys These tax professionals may represent their clients on any tax matters, including audits, appeals, and payment or collection issues.
Space and filing system to keep tax records The IRS requires that tax records be kept for at least three years—longer under some circumstances. Decide on Your Business Name Think about what you would like to call your business. Register Your New Business in Your State Think carefully about the business entity type you choose for your tax preparation operation.
Open a Business Bank Account Doing this is essential for keeping your business and personal financial and tax records separate. Apply for Local Business Licenses and Permits Some locations do require licenses and registrations that non-credentialed tax preparers must have to perform their work in states that have set requirements for tax professionals.
Three steps are involved in the process: Create an IRS e-services account. Submit an application. Pass a suitability check. Acquire Tax Preparation Software Which software solution will be ideal for an in-home tax preparation business? Some of the pricing methodologies used by software providers include: One-time fee plus a fee per tax return Annual fee for unlimited tax returns Annual fee for a certain number of tax returns No annual fee and a volume-based fee per tax return When choosing a professional tax preparation software solution, consider: The types of clients you will serve individuals, businesses, only certain business entity types?
Purchase Business Insurance Business owners can limit their personal liability for the debts of their business by forming an LLC or incorporating their company. A simple one-page site can establish an online presence and give potential customers a way to learn more about your capabilities. Set up social media business accounts — Social media accounts give potential customers another way to find and connect with you online.
LinkedIn, being a professional-focused platform, may be especially beneficial. A Facebook page not a personal profile will also be incredibly helpful. Set up Google My Business — Google My Business feeds both Google local search and Google map results, so it is incredibly important for local searches.
Establish a Means for Maintaining Business Compliance Tax preparation businesses must follow through with some ongoing compliance obligations. CorpNe t — CorpNet specializes in helping business owners prepare and submit all of their business formation and ongoing compliance filings. Besides helping you with the forms and filings to get your tax preparation business started, we can also help you as you help your clients.
Small Business Administration — The SBA is a federal agency dedicated to helping small businesses via counseling, access to capital, and contracting expertise. Make Your Dream Happen! About the Author: Nellie Akalp. Nellie Akalp is an entrepreneur, small business expert, speaker, and mother of four amazing kids. Akalp is nationally recognized as one of the most prominent experts on small business legal matters, contributing frequently to outlets like Entrepreneur, Forbes, Huffington Post, Mashable, and Fox Small Business.
A passionate entrepreneur herself, Akalp is committed to helping others take the reigns and dive into small business ownership.