With ever-changing tax laws in the United States, filing taxes has become a challenge for many individuals. For this reason, a gradual shift has occurred over the years as more and more people look for external sources to help them with their taxes. Although tax preparation isn’t new, the field has gained momentum in recent times due to complicated tax laws and the hefty penalties applied to tax filing mistakes.
However, although the industry is lucrative and has a lot of growth potential, becoming a successful tax preparer is not as simple as most people think it to be. The field requires hard work, persistence, talent, and know-how of the technicalities associated with taxation. Therefore, before jumping into the industry, it is imperative to do your research to see if this career path is suitable for you.
So, if you’re thinking of becoming a tax preparer, the following guide can help you decipher whether tax preparation is a good career choice.
What Does A Tax Preparer Do?
You can be an independent tax preparer and open your own business, or you can work with an accounting and taxation firm as a tax preparer. However, your primary role as a financial tax preparer mostly remains the same.
You will be required to assist with, prepare and file taxation forms for individuals or businesses with the Internal Revenue Service (IRS). Tax filing can also include sorting through taxation-related court issues and performing audits. In short, you will be serving two parties – the IRS and your clients.
You must assist your clients in filing their taxes correctly and taking advantage of tax cuts and relaxations to get the maximum tax refund possible. However, as a registered tax agent, you have a duty to comply with state and federal tax laws to ensure no fraudulent returns are being filed and that your clients are following all tax regulations.
The extent of services you can perform as a tax preparer depends on the certifications and accreditations you have and whether you have the right to represent your clients.
What Are Some OF The Responsibilities Of a Tax Preparer?
As a tax preparer, you will be responsible for the following duties:
- Be well-versed in federal and state tax laws so that you can follow them while filing taxes for your clients. You must also review tax laws frequently and make a note of any changes in them.
- Gather and organize paperwork and information about your client’s expenses, allowances, income, savings, and more. This paperwork and the information contained within it must remain confidential and used only with your client’s consent for tax purposes.
- Verify your client’s information by doing independent research and asking diligent questions to ensure no fraudulent returns are filed with the IRS.
- If you run you work for a company as a tax preparer, then administrative work such as scheduling appointments, meeting clients for reviews, processing the bills, etc., may also be done by you.
- You must be well versed in deductions, adjustments, and relaxation laws to endure that your clients save as much money as possible.
- Fill out forms and paperwork accurately for your clients. Double-check all entries for errors
- Know tax-related calculations, perform these calculations, and double-check them to ensure there are no discrepancies
- Explaining the process to your clients in the simplest terms possible
- Know of, and work with accounting and finance software necessary for tax calculations
- Providing recommendations, and tax advice to clients
How Can You Become A Tax Preparer?
To be eligible to become a tax preparer, you must have at least completed your high school or have an equivalent diploma. Tax preparation courses are always a benefit; however, it is not a requirement.
To become a licensed tax preparer, you must obtain a Preparer Tax Identification Number (PTIN) from the IRS website or send a manual application to the IRS Tax Pro PTIN Processing Center.
However, it may take between 4 to 6 weeks for your PTIN to be approved if you send it manually, whereas applying online only takes a few minutes. You must upload, or send all the required documentation, submit your application, and then wait to receive your PTIN.
Once you receive your PTIN, you can prepare and file taxes with the IRS. However, to file taxes electronically, you must also apply for an Electronic Filing Identification Number (EFIN) to become an IRS authorized e-filer. Once the IRS has completed a background check, you will be assigned an EFIN.
For advanced tax preparation services, you need additional certifications. These include:
- A certified public accountant (CPA) state license: This license requires applicants to complete mandatory accounting courses or obtain an accounting-related degree and pass the Uniform Certified Public Accountant Exam.
- Enrolled Agent license: Candidates must pass the Special Enrollment Examination to receive the federal enrolled agent license. This license allows tax preparers to represent taxpayers for issues related to taxation before the IRS.
Once you have received your credentials and intend to keep them for a long time, you must complete compulsory continuing education hours every few years to refresh your knowledge and retain your licenses.
Tax preparers can further their knowledge through various tax and accounting courses. They can additionally make a name for themselves in the industry by joining the following tax and accounting associations:
- National Association of Enrolled Agents
- American Institute of Certified Public Accountants
- Institute of Management Accountants
- National Society of Accountants
- National Association of Tax Professionals
Advantages Of Becoming A Tax Preparer
Now that you have a general concept of what a tax preparer’s job entails and what are the requirements to become one, here are some advantages of the profession:
Potential For High Revenue
The more experienced you are in the tax preparation field, the higher your charges. However, it is essential for tax preparers to charge per hour or perform, as this helps them maintain a good balance of workflow and a matching income. Clients can pay between $50 to $100 per hour if you are skilled enough at your services.
Can Be Seasonal Or Part Time work
The biggest perk of being a tax preparer is that if you wish to, you can work only during tax season, which typically falls between January 1 to April 15. This is because tax preparers are at their busiest and can work for long hours during this time.
However, after this season, tax preparers have the option of enjoying their earnings and taking a break or continuing to provide tax advisory, preparation, and consultation services to clients. Tax preparers can also go into similar fields such as bookkeeping to earn additional income throughout the year.
No Income Ceiling
If you work as an individual tax preparer, you have no income ceiling as your earnings depend on how much work you do and what you charge your clients. If you become skilled and efficient in your profession, you can easily earn a six-figure salary from tax preparation.
Rapid Career Establishment
Unlike most high-salary careers, you do not need a college degree to become a tax preparer. Although you must acquire the required accreditations and certifications, these are relatively easy and quick to obtain.
Furthermore, if you are serious about your career and continue to improve yourself in the field and gain experience through your work and courses, in that case, you can quickly establish a stable and growing business.
High Demand and Potential For Growth
All individuals must file their tax returns. However, US tax laws are complicated and constantly changing. This is why the demand for tax preparers is continuously rising along with its pay scale. Therefore, tax preparation has significant potential for growth if you enter the field at this point.
If you are looking to work as an individual tax preparer and run your own business, you can easily enjoy all the perks that come with working in your firm. These include flexible work hours and days off. However, you must ensure that you give your business most of your time during tax season to earn high revenue.
Resistant to Recession
With unstable economic conditions on the rise, people are often worried about losing their jobs. However, no matter how much recession there is, people must still pay their taxes and utilize tax preparers to make the process smoother. Therefore, tax preparation is a profession that will always be in demand and is resistant to recession.
Be Tax-Efficient With Your Own Taxes
Another great advantage of being a tax preparer that often goes unnoticed is being efficient with your taxes. You can apply all your financial and taxation knowledge to your income and savings to make sound financial decisions and get the most refund.
Disadvantages Of Becoming A Tax Preparer
Although there are numerous advantages of becoming a tax preparer, there are some disadvantages. You must keep these in mind before starting a career as a tax preparer. The following are some common disadvantages of becoming a tax preparer:
Highly Technical Field
Although you can become a tax preparer without a college education, do not think that the job is easy. You must have complete knowledge of all tax intricacies to file your client’s taxes correctly. There are extensive laws and calculations needed to calculate and file taxes, and if you are not well-versed in your field of work, you will lose clients quickly.
Extended Work Hours and Work Overload during Tax Season
Tax season can be exhausting for tax professionals. This is because numerous clients are running to get their taxes filed at the last minute during this time. Furthermore, you must do a ton of paperwork to file these taxes correctly and before the due date, so in many cases, you will have to work overtime and on the weekends.
Relatively Less Work During The Rest Of The Year
Although tax preparation provides a stable income stream, it is only highly profitable during tax season. This is because the rest of the year is considerably slower in terms of work. However, tax preparers can take up other jobs such as bookkeeping and offer consultancy services during this time.
Filing paperwork requires a lot of patience as there are numerous details to fill out and papers and information to go through. The task requires dedication and attention to detail. However, not everyone is willing enough to put in the hours needed during tax season and lose clients in the process.
Tax preparation is a great career choice. It does not require years of formal education, nor does it need a lot of capital to start your own business. If you want to start your own tax preparation business, you can even do so from your own home. However, it is hard work, and you can only be successful if you put in the hours. But the field is gratifying, stable, and profitable once you do.