Discover how to start a tax preparation business from home. Learn about qualifications, setting up a home office, and strategies for building a client base.

Starting a tax business from home can be an exciting and rewarding venture for those with a knack for numbers and a desire to help others manage their finances. Plus, with the accounting, tax preparation, and bookkeeping services industry recently generating more than $20 billion annually and tax preparers earning up to $96K per year, there’s a lot of opportunity for financial independence.  

Whether you’re ready to begin or are still considering the option, this comprehensive guide will help you learn how to start a tax preparation business from the comfort of your own home. From navigating the initial steps to registering your business and building a client base, keep reading to learn how to start a tax business.

The what and why of starting a tax business

The first step in learning how to start a tax business is understanding what a tax professional does and why starting your own tax business is a feasible and valuable choice. 

The role of a tax professional

A tax professional’s primary role is to assist individuals and businesses in preparing and filing their tax returns. This includes:

• Preparing tax returns

• Calculating financial obligations

• Verifying information

• Filing tax returns

Tax preparers also occasionally advise clients on how to legally reduce their tax liabilities and plan for future tax years. To do this, a successful tax preparer must stay updated on tax laws and regulations to ensure consistent compliance with all tax obligations.

Why start a tax business from home?

Starting a tax business from home offers several benefits. It requires low startup costs, provides flexible working hours, and allows you to build a business at your own pace. 

Additionally, with the complexity of tax laws, the IRS increasing its efforts to collect taxes, and the constant demand for tax services, starting a tax preparation business from home is a stable and potentially lucrative career choice. 

Getting qualified

Being good with numbers isn’t the only qualification. Before you start building your at-home tax preparation business, you’ll first need to become qualified for the position. 

Legal requirements and credentials

A strong foundation in accounting and tax law is essential, and while a degree in accounting or a related field is advantageous, it’s not mandatory. However, a preparer tax identification number (PTIN) is required by the IRS to legally operate as a tax professional and must be renewed annually. 

In addition to the federal PTIN, the following states in the US require separate credentials:

• California

• Connecticut

• Illinois

• Maryland

• Nevada

• New York

• Oregon

Continuous learning

Tax laws change frequently. Programs like the IRS’s Annual Filing Season Program (AFSP) help non-credentialed tax preparers continue their education and keep current on the evolving intricacies of tax laws. 

Becoming an enrolled agent (EA) is also a wise choice. The EA program is the highest credential the IRS awards tax preparers, and enrolled agents can officially represent taxpayers before the IRS. This boosts the credentials of your at-home tax preparation business and can help you build your client base.

Legal considerations

Once you’re ready to start your business, there are some legal steps you’ll need to take to become a functioning business. 

Registering your business

Before registering your business, you’ll need to decide on your business structure. If you’re starting a small, at-home tax preparation business, you’ll likely choose sole proprietorship. This is an unincorporated business owned and operated by one individual: you. However, you may opt for a partnership if you plan to work with another tax preparer. 

For your own tax purposes, it’s wise to apply for an employer identification number (EIN). Though it’s not required for a sole proprietorship, it is required if you want to grow your business beyond this business structure. 

If you plan to operate under a business name that’s different from your legal name, you’ll need to file for a DBA (doing business as). This lets the public know who is behind a business name and is often required to open a business bank account or enter into contracts.

From there, each state has its own unique registration requirements for new businesses that you’ll want to learn about before opening your doors to clients. 

Compliance with tax laws

As a home-based tax business owner, adhering to federal and local laws is vital. Here are key aspects you’ll want to consider:

• Self-employment tax: As a self-employed individual, you’re responsible for paying self-employment tax, which covers Social Security and Medicare taxes.

• Record keeping: Maintaining accurate and detailed records of all income and expenses not only aids in your own tax preparation and compliance but is also essential in the event of an audit.

• Home office deduction: Operating from a home office allows you to potentially deduct expenses related to the business use of your home.

Setting up your home office

During tax season, you’ll spend a lot of time in your home office, so you’ll want to set it up to be productive and professional.

Designate a workspace

Creating a dedicated workspace will help you focus on your work as you move forward. Start by selecting a quiet, private area in your home. It could be a spare room, a specific section in a quieter space, or even a detached guest house if you have one. The main point is to minimize distractions and clearly separate your work from your personal life. Comfort is key, so invest in ergonomic furniture, including a quality office chair and a suitably sized desk, to maintain good posture and comfort during long hours.

Professionalism is key

Creating an air of professionalism not only helps enhance your productivity but also helps shape clients’ perceptions of your business. Though many meetings are done through business calls these days, your clients will see your office space and unconsciously determine the level of your professionalism through your work surroundings. Creating an office environment around you shows that you’re an organized professional who will treat their financial well-being with the same care. 

Acquiring the right tools and software

Pens, calculators, and writing implements aren’t the only tools you need as a tax preparer. Technology has made it easier to do your job quickly, efficiently, and more accurately than ever before. 

Practice management software

Investing in tax preparation software is a must for professional tax preparers, but taking it a step further can make starting your tax preparation business much easier. Practice management software can help streamline your workflow by providing a single platform for secure client communication and document transfers, automated client updates about the status of their tax return, and smooth integrations with your tax preparation software.

When looking for software for your business, consider whether it offers help in all the tax services you’ll provide. If you plan to grow your business beyond tax preparation, make sure that the software can grow with you by offering bookkeeping, payroll, and other services you plan to provide in the future.

Security software

Proper security is non-negotiable for a home-based tax preparation business. Given the highly sensitive nature of the financial and personal information handled, you’ll want to consider incorporating:

• Data encryption: Protects client data and ensures confidentiality and security during storage and transmission.

• Firewall protection: Serves as a barrier to protect your computer network from unauthorized access and cyber threats.

• Anti-virus and anti-malware software: Protects your computer system from viruses, malware, and other attacks that could compromise client data or disrupt operations.

• Secure client portals: Provide a safe and encrypted platform for exchanging sensitive documents and communicating with your clients.

• Data backup solutions: Regularly back up client data, protecting against loss due to hardware failure, theft, or cyber-attacks.

The right tax preparation software or practice management software can provide some or many of these features in one platform.

Marketing your tax business

Marketing is vital to growing any business, including a tax preparation business. Here’s how to get started. 

Building a client base

A great starting place for building your client base is your personal networks. Offer your services to friends, family, and acquaintances. Personal referrals are a powerful marketing tool, so as you complete your services, consider offering discounts for next year’s tax season if your new, satisfied clients refer you to people they know. From there, your client base can spread and form the foundation of your business.

Develop an online presence

The first step is creating a professional website and social media pages. Offering helpful tax tips and information on these platforms can establish you as a knowledgeable professional. You can do this by hosting webinars and workshops on valuable tax-related topics that potential clients need to know more about as tax season approaches. 

You can also utilize online advertising tools such as Google Ads or Facebook Ads to target potential clients in your area.

Providing excellent customer service

In the tax preparation business, the quality of customer service you provide is as crucial as your technical expertise. Exceptional customer service not only satisfies clients but also fosters trust, loyalty, and valuable referrals.

Building trust with clients

Building trust between you and your clients takes time, and it’s done through offering open and clear communication. Keep your clients well informed about their tax filings’ status, respond promptly to their inquiries, and be readily available to address any concerns. This lets your clients know you’re working in their best interest and want to keep them happy.

Reliability and consistency in meeting deadlines and maintaining high-quality work are also key to building trust. Clients should feel confident that they can depend on you for their tax preparation needs year after year. By being a reliable tax preparer, your client base will grow each year. 

Managing client expectations

It’s essential to clearly articulate the scope of your services from the outset, detailing what clients can expect. Be transparent about your fee structure so clients understand how much you’ll charge for your services and why. This will set clients’ expectations on the right path so there are no surprises or disputes when you send your invoice.

Managing expectations about turnaround times is also essential to maintaining client satisfaction. It can be challenging to know when exactly you’ll finish a specific client’s filing, so let them know from the outset and share any updates with them so they know their tax preparation is moving forward. 

Scaling your business

As your home-based tax preparation business gains momentum, you’ll encounter opportunities to scale your operations. This phase is about expanding your services and enhancing efficiency to meet the increasing demands.

Growth strategies

Expanding your business requires careful thought and planning. Perhaps you’re getting more inquiries than you can handle and need help, or maybe you want to grow into different markets. Your actions depend on the type of growth you’re aiming for. 

If you’re receiving more client inquiries than you can handle, the answer is hiring more staff. However, if you’re searching for ways to grow, consider the following:

• Expand offered services: This could include offering specialized tax services for specific industries, tax planning, and consulting, or related financial services such as bookkeeping or payroll processing.

• Specialize in niche markets: Specializing in niche markets, like small business taxes, real estate, or international tax issues, can set your business apart from generalist competitors.

• Developing partnerships and networks: Building partnerships with other professionals like financial advisors, attorneys, or business consultants can lead to referrals and collaborative opportunities.

Leveraging technology

Use technology to streamline your workflow, manage appointments, and maintain client records efficiently. Once again, this is where practice management software comes in handy. If you want to decrease the time it takes to complete a client’s tax return, automate communication, and collect payment, then comprehensive practice management software is a must-have.

Keeping up with industry trends

Staying informed about industry trends and changes in tax laws will help your home-based tax preparation business stay relevant as tax laws change. Whether it’s updates to required documentation, new write-offs, or helpful new tools to get the job done, joining professional organizations, attending webinars, and reading industry publications will help keep you up-to-date and an active industry member.

Conclusion

Starting a tax business at home requires careful planning, a commitment to ongoing education, and a focus on providing excellent customer service. By following these steps, you can establish a successful home-based tax business that meets and exceeds your clients’ expectations. 

Remember, your journey in the tax industry is not just about numbers; it’s about building relationships and helping people navigate the complexities of tax laws. With dedication and hard work, your home tax business can thrive and grow into a fulfilling and profitable career.