New Tax Preparer Roadmap to Success
How does one enter the highly competitive tax preparation industry? How does one go from starting out doing tax preparation for family and friends to becoming a credentialed tax expert? Is this even a sustainable business to have? These are all questions that you might find yourself asking if you are considering tax preparation as a skill to learn or a revenue stream to add to your current business. The important thing to remember is that no one starts out as a tax expert, and with the ever-changing tax laws, it takes continuing dedication to the role to stay on top of your game.
Many would-be tax professionals begin their tax careers at a big box retail tax office. These retail locations will offer tax courses before offering a compensated role to the student. This is a great place to start as it forces the student to learn tax fundamentals. Should they take a position at that firm, they will start to gain valuable tax office experience in a retail setting.
Other new tax preparers will get their start by shadowing another seasoned tax preparer. Often these new entrants may start out in reception or data entry roles in an accounting firm or some other financial services firm. Tax preparation goes hand in hand with accounting, bookkeeping, and payroll services, but adding tax preparation services to other financial business such as an insurance brokerage or a small business providing title loans is also fairly common.
After making it though their first tax season, if not already done in anticipation of their first tax season, a tax preparer who wishes to continue on in the tax industry will want to consider their credentials, their capabilities and their offerings. The IRS currently offers the voluntary Annual Filing Season Program (AFSP) for unenrolled tax preparers. Not only does this designation set unenrolled preparers apart, but it also allows the tax preparer to do some basic representation tasks, such as calling the IRS on behalf of a client whose return was prepared by the AFSP tax preparer. This is a service that is beneficial to both the tax preparer and the taxpayer because the tax preparer can bill for the service and the taxpayer is unlikely to communicate as effectively with the IRS as the tax professional. The AFSP is a program that must be completed yearly unless the tax preparer becomes an exempt preparer which can be done by becoming an Enrolled Agent (EA), a Certified Public Accountant (CPA) or an attorney.
A seasoned tax professional will likely strive to achieve such a respected designation in order to show the public their competency and experience in order to grow their business and reputation. While EAs and CPAs do not have to take yearly exams, they are required to meet yearly educational standards by way of continuing professional education. Once a tax preparer reaches this level of expertise in the field of taxation, finding employment becomes easier. The experienced, credentialed professional tax preparer may even open up a practice, opting for self-employment.
This brings us back to earlier question: Is this a sustainable business to have? The short answer is "yes". The longer, more accurate answer is "it depends". According to the National Taxpayer Advocate's annual report to congress in 2022, it was estimated that "roughly 50,000 IRS employees were expected to be lost through attrition over the next 6 years." Additionally, the industry itself has seen hundreds of thousands of accountants retire over that last few years, and whether prompted by the pandemic or simply aging out, this whole-industry attrition is leaving a large space that can be filled with new financial professionals. There are some large pros and cons associated with working in the tax industry specifically that may have bearing on a person's decision to enter the tax world. Some cons: long work weeks during tax season, continuing education to maintain designations, strict deadlines, expensive punishments for repeated errors. There also some pros: moderately high salary, autonomy and know-how to open and run one's own business, high level of public trust and respect. All of these things will come into play as a new tax preparer makes their decision to stay or leave, just as it will for seasoned tax professionals who are deciding whether to leave or stay, but the bottom line is that, yes, the industry has room for you, and yes, it can be very lucrative when you take the role seriously, and you are billing your worth.
If you are interested in starting your own tax preparation business but have questions about how to get started, give us a call at 1 (866) 357-2052 or visit www.federaldirecttax.com.
Posted: July 31, 2024