Tax preparation is an excellent career with a vast scope. Not only can you start your own tax business as a tax preparer, but you can also join accounting and taxation firms as a tax preparer. The most basic requirement to become a tax preparer by the IRS (Internal Revenue Service) is to have a valid Preparer Tax Identification Number (PTIN), in other words, to have an IRS certification.
However, getting a PTIN or IRS certification is relatively straightforward. In fact, you do not require any formal education to acquire a PTIN. You can apply for a PTIN through the IRS website or send a completed paper Form W-12 to the IRS headquarters. An online application can generate a PTIN within 15 minutes. If you send in a paper application, the processing time can take about four to six.
Once your application is approved, you will receive a PTIN which you can then use to file taxes with the IRS. However, you cannot solve complex taxation issues or represent your clients with only a PTIN. For more advanced taxation services, you must acquire certification and licenses.
If you’re interested in tax preparation services and want to find out more about the certifications required by IRS for various services, then read our detailed guide below for more information.
Why Do I Need IRS Certification?
As mentioned above, you can become a tax preparer with only a PTIN. However, tax preparation, filing, and a few other basic taxation-related tasks are all you are allowed to do by the IRS if you only have a PTIN and no other certifications.
The taxation industry has numerous advanced roles that you can only fulfill if you acquire the required certification. The following are some notable benefits of getting an IRS tax certification:
Although you are legally a tax preparer, if you acquire a PTIN or IRS certification, you can further your career and become an enrolled agent, a certified public accountant, or a tax attorney by opting for additional certifications. This will help you remove any hindrances to having a highly successful taxation business as you will no longer be limited to the most basic field in the industry.
It is no secret that tax preparers have an excellent salary. However, with only basic knowledge and without certification, you will experience slow growth and a slow increase in your income. So as a tax preparer, you may have to work long hours to make a sizable income.
In contrast, a certified tax professional can charge a higher rate and thereby get a higher monthly payment while working for fewer hours. Accredited tax preparers owning a taxation business or employed at taxation firms in large metropolitan areas often fall in some of the highest salary brackets.
Wider Clientele Base
Clients are more likely to go to a certified and knowledgeable tax professional, even if they charge a slightly higher rate. The more professionally proficient you are, the vaster your client base will be. Clients can also hire you for services other than simple tax preparation. This way, you will have a wider variety of clients.
The most common complaint tax preparers have is that though tax season often results in an overhaul of work and high revenue, there is simply not enough work during the rest of the year.
So, if a particular tax season has not been very profitable for you, you would have to wait an entire year to make up for your losses if tax preparation and filing are your primary income source. However, with more qualifications, you can work in other tax fields such as consultation as well. This will result in more work and a sustained source of income throughout the year.
A PTIN limits you to tax preparation only, whereas your certifications can help grow your career and encourage you to continue improving your skillset in the tax field. Growing your knowledge and experience while only having a PTIN will lead to frustration as you will not be able to implement your knowledge freely. This deters most tax preparers from training further and improving themselves.
What Qualification Can I Get?
In the past, the IRS had a competency test for tax preparation for individuals who were not enrolled agents, certified public accountants, or tax attorneys but wanted to have general certification for filing taxes.
However, this was abolished, and only some roles and qualifications that required rigorous examinations and requirements were kept in place. Following are some titles and qualifications you can get if you have an IRS certification:
Enrolled Agents are tax professionals who have undergone rigorous training to pass the licensing exam. In addition, they must prove their proficiency in individual, business, and federal tax planning, tax return preparation, and client representation. Furthermore, Enrolled agents must also undergo a suitability check by the IRS before they are given the license. However, the journey does not just end with obtaining an enrolled agent license.
You must also complete up to 72 hours of continued education every three years to maintain the license. This license is acceptable all over the US and is one of the most extensive licenses a tax professional can obtain. In addition, enrolled agents have unlimited representation rights with the IRS.
Certified Public Accountants
Certified Public Accountants (CPA) are tax professionals who have studied accounting during their college or university and passed the CPA licensing exam. Furthermore, CPAs must also clear the character and experience requirements that have been put in place by the accountancy board that they follow.
These tax professionals are licensed by the District of Columbia, by different territories and states in the US, and by accountancy state boards. Once the license is acquired, CPAs must complete continuing education hours and comply with ethical requirements to maintain their CPA license throughout the years. CPAs offer extensive services, including but not limited to tax planning and preparation. CPAs also possess unlimited representation rights with the IRS.
Another vital tax professional with unlimited representation rights is a tax attorney. You can qualify as a tax attorney if you have a law degree and have passed your bar exam. Tax attorneys may be licensed by a state court, the District of Columbia, or the state bar. These tax professionals must specialize in tax planning and preparation.
However, they are qualified to provide several services, including representing their clients in court for tax-related issues. Furthermore, tax attorneys can also represent clients whose taxes they have not filed. Tax attorneys often have professional character requirements and continuing education hours they must fulfill to maintain their status.
Annual Filing Season Program Participants
Individuals can obtain limited rights for representation with the IRS on completion of the voluntary Annual Filing Season Program. However, all participants must have a valid PTIN to be able to file tax returns.
How Do I Get An IRS Certification?
Depending upon the certification that you want to pursue, your educational requirements, professional requirements, state requirements, and licensing exams may differ. Following is a guide on how to obtain an IRS certification:
An enrolled agent holds the unlimited right to representation and can represent any client, even if they have not filed their taxes. Although there are no specific educational requirements for becoming an enrolled agent, you must pass the suitability check. This includes a criminal background check and checking for adequate tax preparation knowledge.
Furthermore, candidates must pass the Special Enrollment Examination (SEE), divided into three parts. Enrolled Agents do not need any professional experience to qualify. However, having experience does help to advance your career as an enrolled agent more rapidly. Some IRS employees can be eligible to become an enrolled agent without passing the licensing exam due to their extensive taxation knowledge and years of experience.
Certified Public Accountant
The educational requirements to become a CPA may differ according to your state. However, all states require you to complete a minimum of 150 credit hours in your higher education. However, a bachelor’s degree only contains about 120 credit hours, so students must take additional courses to meet the requirements if they want to pursue this field.
A common practice is to take accounting during your undergraduate program and then do a master’s degree in taxation. Individuals that want to become a CPA must sit for the Uniform CPA Examination to acquire their license.
Although the CPA exam is extensive and is divided into four parts, some international students may be allowed to give a shorter exam for CPA qualification depending on their educational background, experience, and the state’s requirements. The professional prerequisites for becoming a CPA may differ from state to state. However, the minimal requirement is a year of experience in finance, taxation, accounting, or consultation in most cases.
To become a tax attorney, you must pass have a law degree and should have passed your bar exam. In addition, however, you must obtain a valid PTIN from the IRS to file taxes, just as all other tax professionals filing tax returns. Furthermore, although it is not required, you should ideally do internships in taxation firms during law school and having an undergraduate degree in accounting can also be beneficial.
How Can I Prepare For Tax Certification Exams?
Licensing exams are pretty extensive and highly comprehensive. The SEE has three sections, whereas the Uniform CPA exam has four sections. According to The National Society of Accountants, you should have done a minimum preparation of 150 hours per section to pass your SEE.
Since the CPA exam is much more extensive, you would require more time and effort to prepare for this exam. Following are some study tips you can utilize to study for your certification exams effectively:
- Have a study timetable and follow it diligently
- Give yourself ample time to study and revise
- Follow a mentor for guidance
- Study with a partner to stay on track and remain motivated
- Memorize all the important taxation formulas
- Ensure that you are following the latest tax laws and are well aware of any recent changes
- Go through sample papers
There is a common misconception that you do not have to go through rigorous training and certifications to excel in your career as a tax preparer. Although you can do basic tax preparation and filing services without any higher education or certifications, you will only be limited to a few processes and practices. To further your career and become a high-earning tax professional, you must acquire certifications from the IRS.
However, before taking the licensing exam, you must go over the state requirements for that particular designation since it may differ from state to state. Furthermore, once you have obtained the certification, you may also have to complete specified continuing education hours to maintain your license. By doing so, you will receive unlimited representation rights for your clients with the IRS and will be qualified to carry out complex tax-related procedures.