Tax preparation is a career that is on the rise and brings a necessary and welcome service to the community.
But how do you become a tax preparer? What sort of qualifications do you need? What tools are available to make you more productive? What does a tax preparer do on a day-to-day basis?
What does a tax preparer do?
Most tax preparers prepare, file, or assist with general tax forms. Beyond these basic services, a tax preparer can also defend taxpayers with the IRS, including audits and tax court issues. However, a tax preparer’s credentials and representation rights determine the extent of what they can do.
In a way, tax preparers serve two masters — their clients and the IRS. They must assist their clients in complying with the state and federal tax codes while simultaneously minimizing the client’s tax burden. While hired to serve their clients, they must also diligently remember their obligation to the IRS and not break any laws or help others file a fraudulent return.
What do you need to become a tax preparer?
Becoming a tax preparer is a straightforward process involving a few basic requirements, including:
- Know-how. For most new tax preparers, learning the ins and outs of the business means acquiring an entirely new professional language. In some cases, this knowledge comes in the form of certification. Finding a professional grade, industry-specific tax research platform that can boost know-how and assist you with knowledge gaps can be helpful.
- Technology. As is the case with most professions, having access to the right technology contributes to the general success of your new business, helping you work more efficiently. Today, most tax professionals use AI-powered tax software to manage day-to-day tasks and enable future growth.
- Clients. It might seem obvious, but you need to attract tax clients to succeed and become profitable. Many preparers start on a small scale — doing individual returns — before moving on to bigger and more complicated matters. As your knowledge grows, so does the opportunity to offer your clients more personalized advisory services.
- Preparer tax identification number. If you want to get paid for preparing tax returns, the first step is applying for — and receiving — a preparer tax identification number (PTIN).
What exactly is IRS tax preparer certification?
The basic IRS requirement for all paid tax preparers is to pass the suitability check and get issued a PTIN. However, once you start talking about the work of an enrolled agent, there will be additional requirements, such as a state license or an electronic filing identification number (EFIN).
How do you get a PTIN?
This process begins on the IRS website and requires annual renewal. However, there is no fee for either the initial registration process or the renewal.
Once a PTIN is issued, the tax preparer must put this on every return they prepare. The IRS website includes many helpful solutions and other tips for people beginning the PTIN application process.
Do you need a license to prepare tax returns?
While the starting point for any preparer will be the PTIN process, a “license” is not the same thing. To become a preparer, you don’t need a specific license. With the IRS, however, if you want representation rights, you need to be an enrolled agent, CPA, or attorney.
However, seven states require a license to prepare in those geographical areas. While many states call it a license, it’s very similar to the federal PTIN in both design and process.
The current states that require a separate credential include:
Many states — if not all — exempt this requirement if you are a CPA or have other professional credentials.
What are the IRS e-file requirements for tax preparers?
The IRS takes the sanctity of the e-file system very seriously, and it has become an area of increased scrutiny, mainly because this is a high-risk area for potential hacking and fraud. As a result, it’s a little more work for a preparer to complete this process.
In many ways, e-file requirements are like acquiring a PTIN; however, they ask for two additional security measures.
First, a professional certification like a PTIN is required, as well as an official copy of your fingerprints. Once you’ve submitted the online documents and sent in your fingerprints, you will receive an electronic filing identification number (EFIN). Then, you are ready to access the portal to submit e-filings.
If a preparer prepares less than 10 returns, they do not need to e-file. If they have filed more than 10 returns in a given year, they must e-file every return they prepare. While there are some exceptions, they are rare.
What is an Electronic Filing Identification Number (EFIN)?
An electronic filing identification number (EFIN) is a number assigned by the IRS to preparers who are approved for the federal and state e-file program.
Once issued, an EFIN does not expire. However, if you change your employer identification number (EIN) or the name of your firm, you will have to get a new one or update it through the online portal.
It’s important to note everybody who prepares taxes needs a PTIN. However, only your firm needs an EFIN. One per firm or physical location is usually required.
To put even more simply, you need a PTIN to prepare and an EFIN to e-file.
So, can you tell me how to get an EFIN?
The process to obtain an EFIN is a three-step process:
- Create an IRS e-Services account on the IRS website.
- Complete and submit your application to become an authorized IRS e-file provider. It can take up to 45 days for the IRS to approve an e-file application, so plan accordingly. All applicants must provide the following:
- Identification information for your firm
- Information about each Principal and Responsible Official in your organization
- Your e-file provider option — if you are a return preparer and want to e-file on behalf of clients, select Electronic Return Originator, or ERO
If the Principal or Responsible Official is a certified or licensed professional, such as an attorney, CPA, or enrolled agent, they must provide their current professional status information.
All other applicants must provide a fingerprint card, which they can arrange by calling the IRS toll-free at 866-255-0654. Work with a trained professional if you need to get fingerprinted. There are commercial services, but your local police station will likely provide this service for a modest fee. Then, mail the signed and completed card to the IRS.
3. Pass a suitability check. After you submit your application and related documents, the IRS will conduct a suitability check on the firm and each person listed on your application as either a Principal or Responsible Official. This process may include a credit check, a tax compliance check, a criminal background check, and a check for prior non-compliance with IRS e-file requirements. Once approved, you will receive an acceptance letter from the IRS with your EFIN.
How long does it take to become a tax preparer?
The simplest answer to this is the time it takes to apply for and receive a PTIN and an EFIN.
However, how long it takes to become a seasoned tax preparer is perhaps the correct question to ask, as the ability to make money and build a career depends upon a certain amount of experience and skill.
In most cases, it takes about two seasons to learn the basics of tax preparation. Whether you plan to start at a firm or become a sole practitioner, the career progression looks similar. Most new preparers will focus on raw data entry in the first year. The second year brings a little more autonomy. By the third year, you’ll have the necessary experience and skills to work as a full-fledged staff preparer.
After the initial period of seasoning, it takes about five years to learn the nuances and niche areas of your clients and your practice. In that time, you gain expertise that differentiates you as a tax preparer and allows you to set yourself apart in the market.
