Tax preparation is one of the most critical aspects of running a business. It is also an important task that individual taxpayers must do each year. It is a federal and state law to file taxes promptly to avoid penalties and fees. It is also the right thing to do. If you have a knack for presenting information about taxes and understanding complicated tax forms, you may have what is needed to work as a tax preparer.
Many people are confused by new tax regulations and other aspects of tax filing. A professional in tax return preparation can make the process of filing taxes a less painful process by handling all of the requirements themselves so that the business owner can focus on their business. If you can master the art of tax filing and enjoy crunching numbers, you may be the perfect candidate to start a career as a tax return preparer. You'll be doing a job that few people want to do, and they often pay you handsomely for it!
What is a Tax Preparer?
Average Tax Preparer Salary
Tax return preparers make an average of $44,000-$47,000 according to the Bureau of Labor Statistics, but they can make much more, depending on who their clientele is and how much work they do during a year.
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There is a lot that is involved with tax prep. The professional local and federal tax return preparer must fill out forms either by hand or by using online software to E-file, check and reconcile figures with various paperwork such as W-2s, 1099s, and many other tax forms. They must have a keen eye for detail so that they will catch any discrepancies between the business ledger and actual income so that income is reported correctly.
They deal with invoices, bank statements, and even stocks and bonds because business owners and individuals are required to report all income, many times from multiple streams of income. For the average business owner, this process can seem overwhelming, especially if they are dealing with large sums of money. Also, the business owner is often too busy to spend time sorting through their accounting paperwork. That's why they are willing to pay a professional preparer to do it for them.
For this reason, they also needs a strong background in accounting. This does not necessarily mean that you need an accounting degree such as a bachelor's or master's, but you are required to have a 60-hour qualifying education course from an educational provider within the past 18 months in most states and a solid foundation in the subject. You should also be familiar with relevant tax preparation software.
Tax Preparer Job Duties and Functions
If you are considering a career as a tax preparer, it's important to know what they do on a regular basis. As the title implies, their job is all about preparing the tax forms of individuals and businesses, as well as non-profit and other organizations. Anyone who is required to file a tax form might be potential customer or client.
As a certified tax preparer, you may be involved in a wide range of activities including filing federal taxes for businesses, tax filing or reviewing tax returns for individuals or non-profit organizations, and proofreading and interpreting a tax form or the tax code for individuals or business owners.
Some popular job titles of a tax preparer may include the following:
- Tax Preparer
- Tax Advisor
- Tax Form Interpreter
- Tax Filing Expert
- Tax Consultant
Some of this will be influenced by the firm you are working for, the types of clients you take on, and whether you are working for yourself as an independent contractor or working on staff as the general tax advisor or tax prep professional. You can define your role in many ways by illustrating what you want to specialize in such as filing taxes, advising or serving as a consultant, or other tasks.
Just be careful not to cross over into legal advice, as this is not something you are qualified for and you should always recommend that a person seek an attorneys advice for more severe tax problems with the IRS or state tax entities.
Special Problems or Situations that Require a Tax Preparer
The tax filing status that someone chooses is important to the outcome of their business. They can also claim more deductibles with certain filing statuses. However, the average business owner may not have a firm understanding of what the different filing statuses mean and other tax knowledge. Accounting professionals with tax expertise may be able to explain the differences between them so that they will make a more educated decision on the category to put their business in.
Handling S-Corp Status
One example of when a tax preparer might help a business owner is to help them integrate into an S-Corp status. Of course, the filing of this must be done with the Secretary of State within the person's state of residence. But, once this is done, it is also important to understand what this status means when it comes to tax filing time. When you are an S-Corporation in most states, you can decide how much income you are claiming on your income tax forms. This means that you do not have to claim your entire income during the tax year. A tax preparer could recommend the percentage to count as income while the rest of the income will be counted as dividends of the company.
This sounds complicated, but a tax preparer has a good grasp of this process, and they can make the entire process simple. Additionally, a tax preparer is the one business owners turn to when they need to know which forms they need to file each year. Avoiding these costly mistakes is essential to the business owner, no matter what their tax filing status is.
Tax Preparer Education Requirements
Unlike tax attorneys or CPAs (certified public accountants), a tax preparer is not required to hold a four-year degree or a license to practice Accounting to be a tax preparer.
In fact, anyone can become a tax preparer without these credentials, provided you following these important steps:
- Obtain a high school diploma as a minimum with strong Math skills.
Take at least 60 hours in tax preparation training through an ACAT
(Accreditation Council for Accountancy and Taxation) training course or from the National Association of Tax Professionals
- Purchase a $5,000 tax preparer bond from an insurance or surety agent.
- You can also attend a community college that specializes in tax preparation careers and receive a one-year certificate. But this is not required.
Obtain a tax preparer identification number from the IRS.
This is a requirement to serve as a tax preparer. You must be registered with a TPIN through the IRS website. If you have completed the above requirements, start by applying on the IRS website to get your TPIN number, then pay the $50 fee to get started.
Register as a tax preparer with your state.
Start with a search for "tax preparer registration within...." and add your state. This will give you the requirements that you need to proceed.
Additional Education Options
Remember that if you know what the basic requirements are to become a tax preparer, your competition does too. It is an inherent truth in the business world that, most people only do the minimum work that is required. If you go the extra mile and take additional courses or improve your skills in some way, you will rise above the crowd and be more likely to be noticed in the crowd.
If you want to get a leg up on your competition, you may also want to consider doing the following:
Take the tax preparer exam.
The official tax preparer exam is known as the Registered Tax Return Preparer test. This test was created by the IRS to improve the overall quality of tax prep among professionals. It holds tax preparers to a higher standard than they have been held to in the past and increases the level of knowledge required for tax professionals.
Become an enrolled agent.
If you become a registered enrolled agent, it may give you more of an advantage over your competition because you have gone the extra mile to prove yourself as a dedicated tax professional. The exam is called the Gleim Exam. You may also take the practice exam on their site.
Intern for a tax prep service.
By interning with established tax preparation services, you will learn the real day-to-day tasks that a preparer is required to do on a daily basis. This can give you real-world experience and help you learn some of the 'best practices' in the real world with clients and an actual business' tax return, rather than basing all of your knowledge on theory or academic perspectives. This will provide you with many more job opportunities in the long run.
Start accepting clients.
Once you have completed all of the requirements for working as a tax preparer, you can start accepting clients as a freelance preparer or go to work for a tax prep business or accountancy firm. Either way, you choose, you will be able to file taxes for either individuals or businesses and make a good living with this profession.
Certification, Credentials and Licensure for Tax Preparers
Unlike tax attorneys or CPAs, a preparer for with personal income tax or even businesses is not required to have a four-year degree, though it can help regarding getting clients or to establish your credibility as a tax expert. You can take the Tax Preparer Exam (TPE), as discussed above to prove yourself further or establish yourself as an enrolled agent by taking the enrolled agent exam. The TPE will allow you to earn your Preparer Tax Identification Number (PTIN), which will allow you to work during the annual filing season preparing taxes for clients and provide assistance to nearly any taxpayer who has questions about their refund, income tax return, or other tax issues. Enrolled agents are directly licensed by the IRS. Other than that, your only requirements are to complete the 60 hours of training in tax and accounting courses that are approved by the National Association of Tax Professionals.
Once you have completed your initial requirements to become a preparer, you will want to find out what is required to keep your certification status active for each tax season. This generally involves taking some additional hours each year to prove to the tax associations of your state and the federal government that you are keeping current on the tax laws and other information that is pertinent to your role as a preparer.
It's important to be aware of the continuing education requirements as well as the initial tax education requirements that your state has in place to work with client taxes. Look into your state requirements to make sure you are getting what you need to continue working as a tax preparer.
Why Choose a Career in Tax Preparation?
Tax prep is a business that will continue to exist, as long as the federal and state government stands. There is an increasing need for preparers and experts in taxation, especially since there have been recent changes in the tax code and laws that affect the filing process.
Filing taxes is not always a bad thing. In fact, as of 2018, many people are excited about the opportunities that have been laid out by the changes the president has made that may allow more tax breaks for business owners and more opportunities for tax deductions and lower tax liability for everyone.
This could be your most exceptional opportunity to reel in new business once you get your credentials as a preparer. Start by searching for accounting or business courses that will start you on your road to success. You could earn a college degree or gain a good background in accounting and tax law to begin your journey. Then learn as much as you can about the tax prep business and licensing requirements and earn your professional certification. You'll soon be on your way to an exciting and potentially lucrative career.
After all, who doesn't want help with their taxes?