For some budding entrepreneurs, starting a tax preparation service is ideal – for others, not so much. To determine if it is the right thing for you, let’s consider the pros and cons of your own tax preparation service and you can be the judge.
There are several good reasons to start your own tax preparation service:
1) It can be done easily from your home. All you need is a table to spread documents out on, a computer with tax preparation software, and a printer. Everything can be done from the comfort of your own home. As you’ll soon find out, if you don’t know already, you may be able to deduct part of the cost of your home.
2) Most tax returns are simple and can be completed in less than an hour by an experienced preparer. The average charge for a single return is $150 to $450 depending on the complexity of the return.
3) There is always a demand for tax professionals. It is estimated that 155 million returns were filed, and 60% were prepared by one of 1.2 million professional preparers. That calculates to an average of 80 returns per tax professional.
4) The first clients will likely be from among your friends and family. Many people appreciate and expect more personal attention from someone they know. Advertising may start with an email to those you care about. In future years, word-of-mouth advertising seems to take over allowing your practice to grow annually.
5) The busy season will be January through April. For most people, that’s the winter months when not much is going on. In fact, many professional preparers earn enough during the busy season to take the rest of the year off.
6) Each year the earnings will increase. As the preparer becomes more proficient, it takes less time to generate a return thereby earning more income per hour when charging on a return, not an hourly basis.
Of course, it’s not all roses. There are some things you should also consider:
1) Tax preparation software is pricey. The minimum cost is over $1,500 per year, with some brands nearing $3,000. Although all professional software will get you to the same place for most returns, the higher-priced software will do the more complex and difficult business returns and often are more intuitive to use.
2) Plan on long hours during the busy season. As you build your practice, you will want to make “hay while the sun shines.” Don’t plan any vacations until after Tax Day.
3) Continuing tax education will be imperative. The tax law changes each year and sometimes the changes can be complicated. Several organizations, including the IRS, hold annual conferences to keep preparers up to date.
4) A PTIN and local business license will cost money and may be restrictive. A Professional Tax Identification Number runs under $40, and a local business license may cost from $50 to hundreds of dollars.
An income tax practice can be a great source of income for an entrepreneur that wants to work out of the home.
If this is the next step for your career, consider being in business for yourself but not by yourself with Universal Accounting Center as a certified Professional Tax Preparer.