Apr 4 2022 / Growth

How to Start a Tax Preparation Business

How to Start a Tax Preparation Business
Lisa Chaud

Lisa Chaud

12 Min

Do you have experience preparing tax returns or work for a tax agency? Maybe you have a passion for numbers and attention to detail. If so, you may be wondering how to start a tax business at home and then how to start your own accounting firm. 

Running your own business will give you more freedom and complete control over both your schedule and earning capacity. Here’s how to start a tax practice.

Who Can be a Professional Tax Preparer?

If you’re thinking of becoming a tax preparer, you may be wondering, “What do I need to start a tax preparation business?”

Many people assume that only an accountant or someone with formal training can become a professional tax preparer. However, that’s not necessarily the case. 

The IRS isn’t as strict as you might think when it comes to tax preparation services. In fact, anyone can become a tax preparer if they have an IRS Preparer Tax Identification Number, or PTIN.

Although the IRS doesn’t require any formal training or certification to prepare taxes, it’s in your best interest to hold professional credentials that the agency recognizes. Not only will this help you gain credibility, but it will also help build trust among clients.

Tax Preparers with Unlimited Representation Rights Before the IRS

Tax professionals that have unlimited representation rights before the IRS can represent clients before the IRS on any matter, including but not limited to:

  • Audits
  • Appeals
  • Payment or collection issues

Only certain professionals with the right qualifications can represent clients. These professionals include:

  • Attorneys. Licensed attorneys can represent clients before the IRS, and many specialize in tax planning and preparation.
  • Certified public accountants (CPAs). CPAs are licensed by their state boards of accountancies and have passed the Uniform CPA Exam. These professionals must meet specific ethical requirements and have specialized training. Many CPAs specialize in tax planning and preparation. 
  • Enrolled agents. The IRS licenses these professionals. In order to become an enrolled agent, you must pass the Special Enrollment Examination that focuses on tax preparation and representation for businesses and individuals. 

A tax preparer with unlimited representation rights can offer clients peace of mind that if they’re faced with an audit or some other issue, they have access to professional representation. So, if you’re starting a tax prep business, having formal credentials will give you a leg up on the competition.

Tax Preparers with Limited Representation Rights Before the IRS

Tax preparers who are not enrolled agents, CPAs or attorneys will have limited representation rights before the IRS. 

There are two types of tax preparers that fall into this category:

Annual Filing Season Program Participants

These tax preparers have undergone the IRS’s voluntary program, which helps preparers without credentials obtain some credibility and professionalism.

For these tax preparers, limited representation means that they can only:

  • Represent clients whose returns they have prepared and signed.
  • Provide representation in front of certain IRS employees, customer service representatives and revenue agents.

These tax preparers cannot provide representation for collection issues or appeals.

PTIN Holders

A PTIN holder is an individual with a valid preparer tax identification number. They do not have formal credentials, nor do they participate in the Annual Filing Season Program.

Only participants in the voluntary Annual Filing Season Program will have the right to represent clients in a limited capacity. If you’re simply an individual with a PTIN, then you will have no right to represent clients in any way, shape or form in front of the IRS. The only exception is if the return you prepared was filed in 2015 or earlier.

What is a PTIN?

Anyone who wants to offer tax preparation services as a business, regardless of their credentials, must have a PTIN (Preparer Tax Identification Number). 

A PTIN is a nine-digit number that’s unique to you. It helps the IRS identify the tax preparer who prepared and filed a tax return. 

Here’s what you need to know about PTINs:

  • They must be renewed annually. Every PTIN expires on December 31 of the year it was obtained.
  • There is a $35.95 fee for obtaining and renewing your PTIN.

Do You Need Special Training to be a Professional Tax Preparer?

If you want to learn how to become a tax preparer at home, you may be wondering whether you need any special training. The answer is: it depends.

IRS Training Requirements

The IRS itself doesn’t have any training requirements. You don’t need formal training or licensing to obtain a PTIN or provide tax preparation services for a fee.

That said, tax preparers need to have a good understanding of the U.S. tax code. If you’re not already an experienced preparer, consider taking courses or undergoing training to advance your knowledge.

State Requirements

Even if the IRS doesn’t have training requirements, your state may require you to have specialized training or education. Some states also have registration requirements that tax preparers must meet.

For example, California requires all non-credentialed tax preparers to attend a 60-hour course led by a provider that’s approved by the California Tax Education Council. The course must be completed within 18 months of offering tax preparation services. The state also requires these tax professionals to purchase a $5,000 tax preparer bond and pay a registration fee of $33. Renewal fees and continuing education requirements are just a few of the many hurdles tax preparers in California face.

What Will You Need in Your Home Office?

If you’re starting your own accounting practice from home, you’ll need a few essential items to get started, such as:

  • IRS forms
  • A reliable desktop computer or laptop with top-of-the-line anti-malware and ant-virus software.
  • A reliable internet connection.
  • Professional tax preparation software.
  • Basic office equipment, such as a scanner, fax machine and printer.
  • Basic office supplies, like paper, pens, notebooks, staplers, binders, etc.
  • Business cards.
  • Filing cabinets to store tax records. The IRS requires tax records to be kept for a minimum of three years.

Having a designated home office will help you stay organized and maintain a level of professionalism that clients expect from a tax preparer.

What are the Steps for Starting a Home-Based Tax Preparation Business?

Once you have your office set up, you can take steps to offer your services formally.

Here’s how to start a virtual tax preparation business:

1. Obtain Your PTIN

You can obtain a PTIN from the IRS by applying online. When applying for your PTIN, you will need to provide the IRS with personal information, including:

  • Your Social Security Number
  • Name, address, birth date
  • Individual tax returns from the previous year

If you have any felony convictions or issues with your tax obligations (business or personal), you will need to provide explanations to the IRS. When you renew your PTIN, you will need to supply similar information.

The process of obtaining a PTIN is simple:

  • Create an account.
  • Apply for your PTIN.
  • Pay the fee.
  • Obtain your number.

If your tax preparation business grows and you need to hire employees, they will each need their own PTINs.

2. Choose a Name for Your Business

What do you want to call your business? Will you simply use your name, or do you have something else in mind? Once you have settled on a name, you will need to check to ensure that it isn’t already taken by another business that offers the same or similar services in your state.

CorpNet offers free corporate name searches.

What if your name is available, but you aren’t quite ready to launch your services? You may be able to order a business name reservation. Most states will allow you to reserve a name for 30-90 days.

3. Register Your New Business in Your State

When forming your business, it’s essential to consider your entity type very carefully. 

  • LLCs and corporations require additional paperwork that must be filed with your state.
  • S-Corps have to file special tax election forms with the IRS.
  • Sole proprietors don’t require any additional paperwork, but you can be held personally liable for damages in a lawsuit.

If you’re unsure of which entity is the right choice for your tax preparation business, consult with a legal and accounting professional.

4. Obtain an EIN

An EIN is an Employer Identification Number. If you want to open a business bank account, you will likely need an EIN. If you’re operating as a partnership or corporation, the IRS will require you to have an EIN.

It’s free and easy to obtain an EIN from the IRS online.

5. Open a Business Bank Account

When running a business, it’s essential to keep your personal and business expenses separate. Once you have your EIN, open a business bank account. 

If you’re operating as a corporation or LLC, you must have a dedicated bank account for your business. If you use your personal accounts, you risk losing protection from personal liability if the company is sued or goes bankrupt.

6. Apply for Local Business Licenses and Permits

Check your local laws to find out whether you will need special licenses or permits to operate your tax preparation business. Some states have certain requirements for tax preparers to operate legally.

7. Obtain an Electronic Filing Identification Number (EFIN)

If you plan to prepare 11 or more tax returns, then you will need to submit them electronically. In order to do this, you must obtain an Electronic Filing Identification Number, or EFIN, and become an Authorized e-file Provider.

8. Acquire Tax Preparation Software

Gone are the days of paper tax preparation. Tax preparation software streamlines the process and helps you stay organized. 

The right software for your business will depend on a few things:

  • The types of returns you will be working on.
  • The volume of returns you will handle.
  • Your budget.

Fortunately, most tax preparation software providers offer many options, so you’re sure to find a solution that meets your needs and budget.

9. Take Measures to Protect Customer Data

As a tax preparer, you will be handling incredibly sensitive information. Clients will be entrusting you with their personal information, and you have a responsibility to protect that information.

Make sure that you have a solution for data protection. The IRS also requires tax preparers to have a written security plan to protect client data.

10. Purchase Business Insurance

To limit your personal liability for business debts, consider purchasing business insurance to protect both your company and personal assets. 

11. Market Your Business

Marketing can make or break your business. You can be the most experienced and skilled tax preparer in the country, but if no one can find your business, your doors won’t stay open for long.

Here are some tips for marketing your tax preparation business:

  • Obtain business cards, and hand them out everywhere you can.
  • Your TaxDome license allows you to create and host a website for free. Take advantage of this perk. Your website doesn’t need to be complex. Check out our tips for building a website
  • Create business accounts on social media sites. Focus on the platforms your customers use. Facebook and LinkedIn are two popular choices.
  • Set up your Google My Business, which will help people find you in local search results on Google.
  • Join a networking group to help spread word about your business.

12. Establish a Means for Maintaining Business Compliance

Professional tax preparers must meet ongoing compliance requirements, which may include:

  • Renewing your PTN
  • Renewing your DBA (if applicable)
  • Filing annual reports
  • Renewing permits and licenses
  • Filing your company’s tax returns and paying your quarterly taxes
  • Holding shareholder meetings

The requirements you must meet will depend on your location, your entity type and other factors. 

Additional Resources to Help You Get Started

Starting a business can be exciting but overwhelming. Here is a list of resources to help you get started. Some of these resources are specific to your tax preparation business, but others are more general in nature.


The IRS has a wealth of information for tax preparers. These links will help you understand:


CorpNet is an excellent resource for starting a business, managing a business and obtaining a registered agent.


SCORE is a network of volunteer small business mentors that can assist new and existing business owners.

U.S. Small Business Administration (SBA)

The SBA helps small businesses by offering access to capital, counseling and contracting expertise.


TaxDome is an all-in-one solution for tax professionals, bookkeepers, CPAs and accounting firms. The platform makes it easy to manage your clients, practice and documents.


Now that you understand the steps to opening a tax office, it’s time to take action. Use the checklist above to register your business and start offering your services. 

Marketing will play an essential role in your success, but don’t underestimate the importance of credentials and expertise. Finally, make sure that you’re using all of the tools available to you to make tax preparation as streamlined and straightforward as possible.

Lisa Chaud

Lisa Chaud

Lisa is a marketer at TaxDome. As someone who strives to provide the TaxDome community with the freshest data, she dives deep when conducting market research for accounting and bookkeeping industries. Her enthusiasm for all things accounting is matched only by her dedication to leading a physically active lifestyle that includes dancing and running.

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