Skip to content

The Ultimate Guide: How to Start a Tax Preparation Business

Sharissa Barnett Mar 8, 2023 12:14:26 PM
Tax red word sign showing people how to start a tax preparation business

Businesses and individuals consider filing taxes a complex exercise that can be frustrating. They have to go through volumes of tax records and sometimes make mistakes like missing a deduction that can trigger an IRS audit. That's why different businesses and individuals look for quality and professional tax services.

Knowing how to start a tax preparation business can help solve such problems. The need for a professional tax preparer is on the rise, and it will continue to grow as many seek business tax help. Such services allow them to save time and money.

Starting a tax preparation business provides solutions to your clients while offering you job security and flexibility. As a tax preparer, you can choose the niche and services you want to deliver. You can also decide if you will become a virtual tax preparer and work from home.

Here is how to start your own tax business.

How to Start a Tax Preparation Business: Step by Step

Before working with your first client, you need to follow the steps of how to start a tax preparation business. When starting your business as a business tax preparer, you'll need to:

Obtain a Preparer-Tax ID Number (PTIN)

Apply for a PTIN from IRS and remember to renew it each year. A PTIN is a unique identifier for each tax preparer, so it can not be shared.

If you plan to employ staff in the future or plan to hire people who will offer business tax help services, ensure they obtain their PTIN.

Choose a Name and Register Your Business

Research and think about a name for your new business. After you select a business name, check to ensure another business offering the same services is not using it.

If the name you like is available, you can register your business. There are several options for registering tax services for businesses.

For example, you can register your business as a limited liability company, a sole proprietorship, or a partnership. The best way to make the right choice is to consult a lawyer to help you understand the pros and cons of each option.

Obtain an Employer Identification Number (EIN)

According to the IRS, any business that operates as a corporation, a partnership, or wishes to hire employees must have an EIN.

The IRS, through its website, enables you to follow a simple process and order an EIN online. Opening your business bank account will also require you to have an EIN.

Open a Bank Account for Your Business

Having a bank account for your business helps you properly manage your records and finances. Also, registering an LLC (limited liability company) requires a separate bank account.

Having a dedicated business account enables you to protect your personal property. It separates your business assets from private property.

Apply for License, Permit, and EFIN (Electronic Filing Identification Number)

Different states may have different permit and license requirements. Research the license and permit requirements of your state and apply.

Understanding how to start a tax preparation business requires knowledge of IRS tax submission. For example, if you are submitting 11 or more tax returns, you need to do it electronically.

That means you will also need an EFIN. It can take up to 45 days to apply and get it.

Choose a Tax Preparation Software

"Practice management made simple." Choose a software that offers a one-stop shop for your communication with teams and clients, storing important documents, and collecting unlimited e-signatures. Collaborate with your team and make businesses thrive.

Basil is a secure client portal for better collaboration and service delivery. It lets you share important items like QuickBooks, documents, organizers, and tasks. Important documents that need signing can use electronic signing and Knowledge-Based Authentication.

Comply With Customer Data Protection Measures

Customers trust you and expect you to put measures in place to ensure their data is safe. Starting a tax preparation business means handling your clients' sensitive information. Knowing how to start a tax preparation business that is compliant with data protection measures is important.

You must also write a security plan when writing your tax preparation business plan. The law requires you to have this plan and to implement it.

Insure Your Tax Services for Business

Buy an insurance policy to limit risk and protect your assets. An insurance policy can protect you in specific situations.

For example, a cover will protect you against property damage when you might need to go to a client's house. Insurance can handle a suit that may arise against your business.

Market Your Business

Knowing how to start a tax preparation business and market it is important. Let people know about the tax services.

Whether you are a virtual tax preparer or a brick and mortar business, make an effort to acquire more customers. Methods of marketing include

  • Establishing an online presence using a website

  • Engaging clients on social media

  • Joining networking groups online and in person.

  • Distribute business cards.


Tips on Year-End Tax-Planning

tools required to learn how to start a tax preparation business

How to start a tax preparation business involves knowing helpful tips for your year-end tax planning. Here are methods for maximizing your tax returns and avoiding penalties.

Check Previous Year's Tax Returns

The previous year's tax returns can help you prepare for current year-end tax planning. Print them out and compare the estimates you had last year with what you have this year.

Check the information and make the necessary adjustments. The previous year's estimates provide a rough estimate of the current year's tax. It's a simple and fast way of updating your tax returns.

Defer Income

Deferring income means you will pay income tax next year and not this year. For example, if possible, you can advise your clients to defer bonuses to the next financial year.

It is advisable if it will lower the tax bracket next year. This will help you make the tax burden lighter for your clients.

Use an Affordable and Efficient Software

Affordable software lowers your starting capital and makes you more efficient, leading to more quality referrals. The best online software is easy to use. It can help you gather information quickly before you start calculating taxes. Such information includes.

  • The previous year's tax return

  • Pay stubs

  • Investment statements

  • Miscellaneous on income and deductions


Following the steps to start a tax preparation business is the beginning of a successful journey. It is a process that helps you solve your clients' problems while achieving financial security and work flexibility.

Having the right tools, like software that provides everything you need, makes your business more efficient. It helps you file tax returns faster and save time. Schedule a demo with Basil and get an affordable, efficient, and simple solution.

Leave a Comment