Business Overview


As the owner of a tax preparation business, you’ll have the responsibility of cutting through the fog of federal, state, and local tax preparation, filing returns, and often earning tax rebates for individuals and, perhaps, small businesses.

Who is this business right for?

If you are a well-organized, people-oriented person who’s taken professional courses to learn the tax preparation business and are at ease with automation and digital software, you could thrive at this largely seasonal business. You should be able to handle long and probably stressful hours in a contained season of intense activity from January through mid-April. After that, you’ll have plenty of time to recover!

What happens during a typical day at a tax preparation business?

Think of your business as falling into two periods—tax season and pre-season—with very different areas of responsibility for each. During tax season, you’ll primarily see clients and prepare and file their taxes. Your goal is to do almost nothing but handle your clients since the tax-filing season is bound by the deadline dictates of the Internal Revenue Service and other taxing agencies.

Off-season, your responsibilities are more diverse. Your pre-season day will probably include some or all of the following activities.

  • Interviewing and hiring temporary tax-prep employees, if you have a customer base that justifies seasonal help
  • Seeking temporary storefront offices if you plan on working from such a public space rather than from your home
  • Ordering and mastering your tax preparation software since software glitches or usage confusion during filing season can result in customer fee losses in the hundreds or thousands of dollars
  • Conducting marketing and social media strategies to atttract customers

What is the target market?

Who will your typical clients be? You might mostly see lower-income earners filing to receive their earned income tax credit. Or more complicated cases from the self-employed or smaller businesses. Or the middle class, who aim to take advantage of various tax credits. Making this decision will help you determine where you might open a storefront, how and where you might market your business and what specific skills you must master.

How does a tax preparation business make money?

You’ll charge a fee for your services, based on the complexity and time involvement of the filing.

What is the growth potential for a tax preparation business?

The U.S. tax code contains 73,000 pages. Eighty-two million individuals file annually and the complexity of the process discourages most people from preparing their own taxes. While politicians from both parties promise simplification of the tax code, the reality is that the process only grows more complex. That means you can always feel confident of a customer base eager for your help.

Getting Started


What are some skills and experiences that will help you build a successful tax preparation business?

In the beginning, your sales and marketing skills will be critical. That’s because you have a narrow window of opportunity for attracting business and plenty of name-brand competition (H&R Block, Jackson Hewitt, TurboTax, etc.). You must also have the patience to prepare for your business success by taking the 60-hour tax course you’ll need for certification and applying for efiling licensure from the IRS.

Once you’re in business, you’ll have to be able to work fast, efficiently and accurately to see as many clients and submit as many tax filings as you can over your limited calendar time. You must also be able to make your clients feel at ease regarding such topics as income, debt, taxes and penalties.

What are the costs involved in opening a tax preparation business?

You can start your tax prep business relatively modestly, but there are some unavoidable costs to consider:

Office rent—zero to $1,500 or more. This is a business that you can run from your home, but you must consider if that would be a smart move. First check to make sure your neighborhood is zoned for seeing clients (hopefully a lot of them over the course of a few months) from your residence. Also keep in mind that a storefront office in a part of town with good traffic can act as a billboard and encourage walk-in trade. This might be especially important when you start out. As for the cost of office space, that can vary dramatically from region to region and even from one part of town to another. Look for space that has been empty for awhile and a landlord who might be motivated to get some cash flow to the building for a short lease period of perhaps only three or four months rather than watch the space sit idle.

Business cards, logo and signage—$1,000 or less. If you’re operating out of your home, signage might not even be allowed. But anytime you are able to hang a sign, it will serve as a free billboard and encourage impulse walk-ins. Your logo and business cards can be designed inexpensively if you find a talented graphic design student trying to build a portfolio.

Office equipment and automation—$2,000, est. or more. Even if you’re working out of your home, you want your business to look as professional as possible. That means you should have an office desk and a comforable chair for yourself and as many as two for clients. You’ll also need at least one laptop and printer, or a computer for every employee.

Tax preparation software—$400-$500. There are various vendors depending on your needs.

Legal, licensure and insurance—2,000 est. You must first pass a 60-hour tax prep training course that can cost in the $500-$600 range, depending on where it’s taken. There are additional costs from the IRS and for liability insurance. Furthermore, a few states require additional regulatory adherence. Visit here for an explanation of some of the training costs and requirements.

Employee costs—Vary. Some of the leading competitors pay individual tax preparers as little as $10 an hour. Others pay a commission of perhaps 20 percent of the fees generated. You’ll also be responsible for tax withholdings and your FICA and Medicare contribution for each hire.

What are the steps to start a tax preparation business?

Once you're ready to start your tax preparation business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:

  1. Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
  2. Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your tax preparation business is sued.
  3. Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
  4. Open a business bank account. A dedicated checking account for your tax preparation business keeps your finances organized and makes your business appear more professional to your customers.
  5. Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
  6. Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
  7. Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
  8. Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
  9. Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.

Select your state below for an in-depth guide on completing each of these steps in your home state.

Where can I find a business mentor?

One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.

Having a support network in place to turn to during tough times is a major factor of success for new business owners.

Recommended: Fizzle.co offers video courses and a supportive online community of like-minded entrepreneurs. Try one month membership for for free.

What are some insider tips for jump starting a tax preparation business?

Start slow. In fact, before going on your own you might consider working for a season for one of the large competitors. This is a good way to sharpen your skills at using the software, confronting a variety of taxation challenges and working productively. You might also keep your day job and take on a few clients on nights or weekends at first. If you meet their needs they’re likely to be back for years to come—and be powerful word-of-mouth recruitment tools.

Growing Your Business


How to promote & market a tax preparation business

As mentioned, your storefront might be your most effective marketing tool if opened within sight of your market audience. Also use social media, including LinkedIn and a Facebook group, to spread the word and communicate with your clients. Your marketing efforts might also go as low-tech and “old school” as handing out fliers to passersby and asking to post fliers or business cards in area businesses.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

How to keep customers coming back

Excellent customer service—and satisfactory tax returns—will earn you repeat business through the years. These loyal clients are also likely to recommend you to friends, family or business associates.

How and when to build a team

You look forward to the day when you’re so busy you need additional help. Remember, you don’t want to turn any client away because you don’t have time for them or you could lose them to a competitor forever. Before that happens, start to post for help on job boards. But be sure you state the requirement that applicants must have passed the 60-hour training course (or additional training if they’re to take on business tax clients).

Legal Considerations


State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a tax preparation business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, check out our informative guide, Sales Tax for Small Businesses.

For information about local licenses and permits:

Certificate of Occupancy

A tax preparation business can be run out of an office. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO).  A CO confirms that all building codes, zoning laws and government regulations have been met.

  • If you plan to lease a location:
    • It is generally the landlord’s responsibility to obtain a CO.
    • Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a tax preparation business.
    • After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
  • If you plan to purchase or build a location:
    • You will be responsible for obtaining a valid CO from a local government authority.
    • Review all building codes and zoning requirements for your business’ location to ensure your tax preparation business will be in compliance and able to obtain a CO.

Services Contract

Tax preparation businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example of one such services agreement.

Reduce Personal Liability

Structuring your business as a limited liability company (LLC) ensures your personal assets are protected in the event your business is sued.

What is an LLC?

Form an LLC in 5 easy steps

Earning Potential


How much can you charge customers?

According to a National Society of Accountants survey released in 2017, the average fee charged by tax preparers for an individual itemized 1040 return with a Schedule A form and state tax return was $273. For small business clients, the average charge was $457.

What are the ongoing expenses for a tax preparation business?

If you have a temporary storefront, rent and utilities will be among your largest fixed costs. Temporary employees will also cost you either an hourly rate or a percentage of the business they handle. Other costs might include advertising if you’re looking for a sudden uptick in business.

How much profit can a tax preparation business make?

Error-free speed is of the essence. With a statistic mentioned earlier of the average itemized individual return generating $273 in fees, one of these per hour is possible. However, especially as you start your business and before you attract a significant client base, you’ll face unprofitable downtime. Here’s a business resource that estimates that a highly productive tax preparer might be able to see ten clients a day, and suggests ways of hitting that ambitious goal.

How can you make your business more profitable?

Some accountants or CPAs offer tax prep as one of a range of accounting services. This business is also compatible with financial services, real estate brokerages, insurance and other fields where the business owner is comfortable discussing financial issues with clients. Also keep in mind that if your client base significantly consists of private contractors and small business owners, they might have additional tax issues throughout the year.

And finally, consider conducting tax prep training classes as a complementary service. You could conduct such a class through The Income Tax School.

Next Steps

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