By becoming licensed to work in professional tax preparation services, you may be able to increase your hourly income by up to $100/hour. During tax season, you may earn more money in those four months than you earn the rest of the year. Because various types of taxes are required by the US government and states, such as a business tax or individual tax, etc., your knowledge and skills will always be sought after.
Digging a little bit deeper, close to 80% of people file taxes, either personal or business. When you look at the numbers, including that the tax preparation industry may grow by 4%, it’s easy to see that your knowledge is in demand.
It isn’t easy for everyone to do their own taxes if they don’t have the knowledge of current changes to tax code and some federal tax returns can be complicated to complete for those who haven't had the benefit of an income tax course or a general tax preparations course. So, if you are thinking about becoming a tax return preparer, completing a tax return preparer program and earning the certification to prove you are a tax professional communicates to employing firms or potential clients that you can help businesses or individuals and any other interested customer or taxpayer figure out how to complete and submit each form and how much they can write off their yearly taxes based on your updated knowledge of the tax code and all applicable laws.
What is an Accredited Tax Preparer (ATP)?
Tax return preparers are people who provide professional assistance in calculating, preparing, and filing tax returns for those with local or federal tax liabilities who request their services. Some tax preparers have earned third-party credentials, by taking the CPA exam or becoming enrolled agents, while others don’t have such credentials. If tax return preparers aren't CPAs, tax attorneys, or enrolled agents they do not have even limited representation rights to represent clients or a taxpayer to the Internal Revenue Service, even if they are tax professionals.
What Does a Tax Preparer Do?
A certified tax return preparer makes financial calculations and files taxes for people who feel they don’t have the necessary knowledge to do the work themselves or for whom it’s a complicated process and they want to make sure there are no mistakes. Every tax preparer must hold a Preparer Tax Identification Number (PTIN). This number must be included on every return they sign and file in order for it to be valid. Note that this is different from the electronic filing identification number, which will provide you access to your IRS e-services account and provide e-services to clients, such as an e-file of their income tax return each year and the accompanying payment without worrying about security issues.
Income tax return preparers who work for small tax preparation firms or local outlets or chains are often not fully trained; their knowledge and experience may be beginner to intermediate, or anywhere in between. Some tax preparers do the work only seasonally and so have no need for further certification. The annual filing season program was created by the IRS to encourage those with some experience in the tax business to complete continuing education. It grants them a record of completion to help them distinguish themselves among the less trained tax professionals and increase the accessibility to job opportunities. For this, you must complete 18 hours of tax courses, renewing your preparer tax identification number(PTIN), etc.
Enrolled agents hold a license granted by the federal government. They may have passed an IRS exam or worked for the IRS for at least ten years. They are also required to complete continuing education hours every year in accounting methods and tax regulations but they are able to represent clients to the IRS in terms of dealing with an audit or if there are questions about their individual tax return.
Certified public accountants (CPAs) must pass the difficult Uniform CPA Examination, but are able to assist a client through more complicated financial situations such as retirement and starting or closing a business. If a client’s tax return is under audit by the IRS, a CPA can help represent them before the IRS. They may check also the work of another employee to make sure the numbers are accurate. Some tax attorneys spend their time working with clients who have a large amount of assets and business transactions.
Education Requirements to Become an Accredited Tax Preparer
- Degree Necessary
It's important to note that a college degree in accounting isn’t absolutely necessary to become a tax return preparer. However, math skills (addition, subtraction, multiplication, and division), along with the ability to do more complex calculations so you can see if you can find a better approach, will be necessary to be a benefit to your clients.
You should at least have a high school diploma, which ensures you have a few of the skills needed to function and accurately prepare tax returns. Clients who see you hold a diploma will be much more likely to consider hiring you. Having a college degree in accounting and tax preparation is not needed, but would enhance your chances of getting hired. You'll need to have your Preparer Tax Identification Number (PTIN), and computer skills are useful as tax returns are now mostly a process completed by using a computer. You’ll also need client management skills: attracting clients, interviewing, and good communication skills. The most important thing will be passing the exam to gain certification if you want to be hired by a tax services provider.
- Subject Focus
Your responsibilities as an accredited tax return preparer will be many. You’ll need to learn everything included on the exam and earn a passing score to be accredited. Learning what you need so you will be the most effective tax preparer possible means that the tax returns you process and file will be more readily accepted by the IRS and state taxation agencies and are less likely to result in an audit for your client.
Subjects covered by the exam include:
- Preparing most tax forms, including individual and business tax returns and their content
- The IRS Competency Exam
- Interviewing taxpayers
- Determining the filing status of taxpayers and their eligibility for exemptions
- Reporting paid income and deductions for your clients
- Determining eligibility for credits and deductions
- Learning to compute income for taxpayers’ Schedules C, E, and F
- Understanding depreciation deductions and potential eligibility for Section 179
- Calculating tax refund or balance due for taxpayers
- Providing advice and beneficial tax planning strategies to taxpayers who require them
This exam is offered in two exams windows during the year. The summer window is June1-July 15; the Fall window is Sept 15-Nov 15. You can schedule your exam for any day during this time, but you will want to schedule before the beginning of the window so as not to pay a late registration fee. If you schedule early enough, you will receive a discount for early bird registration.
The exam is offered at Scantron testing centers across the country. Of course, you’ll want to look for dates and times that work best with your schedule, but there’s always the possibility that you may not get the appointment time you want. Be sure when you schedule; rescheduling is not free and there may be limited testing space on top of the late registration fee if you wait until the last minute.
Once your registration is processed, then you will be able to schedule. The competency test lasts two and one-half hours. Questions are in true/false and multiple-choice formats.
How is the ATP Exam Scored?
Tax return preparer exams test you on the laws governing personal income tax, along with the theory and practice around tax preparation. To pass your exam and become a tax pro, you must score a minimum of 70. You will receive a certificate showing your accredited status and will be able to view and share this report once you receive it in the mail. Your results will be stored indefinitely.
The organization that gives the exam also grades and scores it. If you check, you'll notice that there is no limit to the number of times you can retest as long as you are willing to pay the $250 application fee each time. Failing once will not affect your ability to be registered if you pass a future taking of the exam.
For the tax return preparer exam, the policy is that you will not be allowed to bring any resources, electronic devices, or bookbags into the exam center but will be given paper and a pen/pencil once you've started if required.
Study Resources and Courses for the Exam
The IRS requires all tax preparers, no matter their level, to pass an Accredited Tax Preparer Competency Exam. As long as you have all materials necessary to study and practice for the exam, you should be ready and able to pass the exam. You could even take a review tax course if you are unsure of something that is on the test.
Tax attorneys, IRS-enrolled agents, and certified public accountants (CPAs) do not need to take this exam.
Look for study materials, which you’ll find on the Competency Test Information page on their main site. Study Forms 1040, 6521, 2848 and their instructions. It’s also a good idea to study Forms 8879, 8867 and 8821. Study Circular 230 and publications 17, 224, 596, 1345 and 4600.
You can also look for tax course offers from approved continuing education providers and take a test preparation course. If you can’t find any close to where you live, see if any providers offer a test prep tax course online.
Depending on the extent of your study and preparation, you shouldn’t have too much difficulty with this exam. You have several exam review options from which to choose. You could get a textbook, review questions, practice exams, and accompanying answers and explanations for each answer.
Because the exam includes federal tax preparation, ethics, and tax law updates, if you don’t already have experience in this area, you may have to study diligently to pass. If you want to practice more questions on tax law updates and the required ethics and responsibilities, you should look for study packages that include these topics. There are detailed courses available online from the Accreditation Council for Accountancy and Taxation. Just look for the ATP study materials at the link below.
Practice tests will be about the same length as the actual competency exam.
- Tax Preparer Exam Cost
To take the accredited tax preparer exam, you’ll need to pay for the exam itself. The test itself costs $250 each time you schedule a test time. If you schedule late, there is a $50 late fee and you may find out that there are no more reasonable times available, meaning you might end up taking the test very early in the morning or on a day that is highly inconvenient. If you decide you need to reschedule, you’ll be required to pay a $50 rescheduling fee, and you’re likely to continue to have even more trouble finding a good spot.
- Tax Training Courses
Tax training courses from a company like H&R Block or Jackson Hewitt can you help you progress your career as a certified tax preparer. These courses appeal to accountants to enable them to learn about tax preparation and tax laws. These types of IRS approved courses will expand your resume and teach you about the fundamentals of taxes, new tax laws and tax standards. This will enable current accountants to expand their services and increase their client base, which will provide a new income stream to increase revenue.
Tax Preparer Careers & Salary
- Where Might You Work?
Once you take your ATP exam, you want to know where you might be able to find work. Because your new professional role is so specialized, you’ll be able to work in some specific types of professional offices.
Tax Preparation Chains/Local Outlets
The tax preparers in these agencies are required to have some training, though your certification may not be a requirement. In addition, tax preparers who work at these locations may choose to do this work only during the tax season, while others decide to work year-round.
You may also find work in a law firm focused on tax work or an accounting firm. Another choice would be to start at the bottom in a city/state government tax office. This would provide you plenty of opportunity for upward movement if you decide to go back to school or earn more taxation credentials.
- Career Outlook
The current employment for tax preparers stands at 66,670. Their average hourly wage is $23.82, which is slightly better than for people in other occupations. Their average annual wage is $49,550.
States on the east and west coasts are better positioned to offer employment to more tax preparers than are smaller, more rural states. Eastern states with plenty of available positions include New York, Pennsylvania, and Virginia; the western state that employs the highest number of tax preparers is California. Rural states, such as Wyoming, have the lowest percentage of tax preparers, according to the BLS.
The average annual wage of tax preparers is the highest in states with higher populations: Texas, Colorado, and California, for instance. Other states where tax preparers earn higher wages include Massachusetts, New York, and Connecticut.
The BLS projects that job opportunities for tax preparers will decline by 1% between 2016 and 2026. But this projected drop contrasts with the anticipated 7% increase of all other professions in the US. Because of budget cuts at the state and federal levels, job opportunities for tax preparers are expected to fall in response. Most tax professionals work for the IRS and this projected funding decline will also affect their ability to find other tax professional-related positions significantly.
Financial specialists are expected to do much better, since they are looking at a potential increase of 10% in employment opportunities.
As a tax preparer, you’ll work in an office environment. If you choose self-employment, you might prepare tax returns from your own home. Once you begin working in this field, you can expect to be hired as a tax preparer seasonally, with no additional duties. You should have, at minimum, a high school diploma or GED; having advanced math skills focusing on taxation and statistics will help you.
To improve your job prospects, you could choose to take tax preparation courses at community college and graduate with your associate degree. Taking certification courses and earning either your enrolled agent (EA) or certified public accountant (CPA) certifications would also be greatly beneficial.
With just this certification, you should earn about $14/hour; some positions pay minimum wage, while others may be closer to $40/hour depending on their clientele and the complexity of projects you are able to work on. A potential average salary is $44,000.