Starting A Tax Preparation Business

What Does a Tax Preparer Do?

What Is a Tax Preparer?

A tax preparer is an individual who prepares, calculates, and files income tax returns on behalf of individuals and businesses. There are several different types of tax preparers, with some having credentials issued by third-party organizations while others are non-credentialed preparers. Knowing the different types of tax preparers and credentials can help you get your best tax outcome.

Credentialed vs non-credentialed tax preparers

Credentialed tax preparers.  Many tax preparers are credentialed professionals who work year-round, primarily on accounting and tax related tasks.

Credentialed tax preparers include:

  • Certified Public Accounts (CPAs),
  • Enrolled Agents (EAs), and
  • Tax Attorneys.

All three types of tax preparers receive credentials from the Internal Revenue Service (IRS) or a state board.

  • CPAs receive credentials from state boards.
  • EAs receive credentials from the IRS.
  • Tax Attorneys are licensed by state bar associations.

Non-credentialed tax preparers.  Individuals who prepare taxes without a credential from a third-party organization are non-credentialed preparers. Instead of meeting the requirements of a third-party issuing organization, non-credentialed tax professionals may be self-taught or have received training provided by a tax preparation store where they work on a seasonal basis.

Non-credentialed tax preparers include:

  • Seasonal tax store employees,
  • Volunteer Income Tax Assistance (VITA) program volunteers,
  • Tax accountants not Certified by the American Institute of CPAs (AICPA), and
  • Annual Filing Season Program participants.

Tax preparers working or volunteering with these businesses and organizations can carry credentials and prepare tax returns, but they are not required to in most cases. Unlike CPAs, EAs, and tax attorneys, many non-credentialed tax preparers only provide tax preparation assistance for a few months of the year during tax season.

What skills do you need to be a tax preparer?

A tax preparer usually holds a degree in Finance or Accounting. They have good knowledge of tax preparation software and MS Office. To become a competent tax preparer, it’s important to have attention to detail, and great mathematical and communicatiTypes of credentialed tax preparers

Certified Public Accountant (CPA).  As the name suggests, a CPA has been certified by a state or governmental territory as having attained the required skill level in areas of accounting and tax preparation, including,

  • Maintaining financial records,
  • Certifying financial statements, and
  • Conducting audits.

To become a CPA, an individual must pass the Uniform Certified Public Accountant Examination, a comprehensive test given by the American Institute of Certified Public Accountants, and be licensed by the state in which they work.

  • More than forty states require CPAs to pass an ethics exam prior to licensing.
  • All states require CPAs to take continuing education courses to remain up-to-date on change on accounting and tax laws.

CPAs are authorized to represent their clients on all matters before the IRS, including,

  • Tax audits,
  • Payment and collection issues, and
  • Appeals.

Enrolled Agent (EA). 

An EA is an individual licensed by the IRS to represent clients in any matter before the IRS. To become an EA, an individual must,

  • Pass the IRS’ Special Enrollment Examination, or
  • If they are a former IRS employee, have certain work experience.

Once certified by the IRS, EAs are required to stay up-to-date on changes in the tax law by completing at least:

  • 16 hours of continuing education each year
  • 72 hours of continuing education every three-year period

Tax attorney.  A tax attorney is an attorney who specializes in tax law. A tax attorney usually must,

  • Earn a college degree and then a law degree.
  • Pass a state bar exam.
  • Obtain a state license, which often involves meeting certain standards of character.
  • Continue their education throughout their careers.on skills.

What does a tax preparer do?

Here are the duties and responsibilities that a Tax Preparer is likely to perform in their role.

  • Manage quality communication, customer support and product representation for each client.
  • Confer and assist CPA departmentally.
  • Complete education requirements for CPA license.
  • Recognize by IRS for outstanding public service and community contribution.
  • Utilize QuickBooks to update client information and generate year-end statements.
  • Prepare bank reconciliations and general ledger maintenance for multiple clients using QuickBooks software.
  • Assist low-income individuals and families in courteous, accurate income tax preparation to ensure maximum deductions and understanding of complex regulations.
  • Establish first disaster recovery plan.
  • Provide accurate financial service, ability to multitask and work in a fast pace environment, exceptional customer service skills.
  • Develop ability to work in a fast-pace atmosphere maintain excellent customer relations and develop customer rapport.

Responsibilities of a Tax Preparer

Tax preparers have an important job that requires earning the trust of the client. It is the responsibility of a taxpayer to prepare and submit an accurate income tax return to the Internal Revenue Service. If the preparer makes a mistake, the taxpayer can incur late fees and penalties. Tax preparers must keep up to date on the continually changing tax codes, and have knowledge of both federal and state tax laws.

Interviewing Clients

Before the preparer can begin preparing a return, the preparer must ask the appropriate questions to determine which tax form is required to prepare the client’s return. The tax preparer must discover the client’s annual income, exemptions, deductions and expenses. It is also essential that the preparer determine whether the client owns a business. If the client hired the tax preparer to prepare last year’s taxes, the preparer might also examine the prior year’s tax forms and question any changes.

Gathering Financial Information

To complete an income tax return, the tax preparer must collect and discuss the client’s current year financial information. This information will typically include income statements, such as Form W-2; expense documents, such as receipts; the names and Social Security numbers of all dependents; and any other forms that the client received. These forms will determine whether any supporting documents are required to complete the return.

Completing the Forms

Many tax preparers use income tax software to prepare income tax returns. These computer programs present the preparer with a checklist, which helps the program to determine which forms are required to complete the return. For those preparers who do not use tax software, the IRS offers fillable forms, which perform the calculations automatically. While preparing the forms, the tax preparer will search for tax-saving deductions or credits and try to reduce or eliminate the client’s tax. If the client has an unusual tax situation, the preparer will refer to the IRS website or Publication 17 for assistance. Once the forms are completed, the tax preparer will advise the client of the tax due or amount of the refund.

Filing the Forms

Most tax preparers will file a client’s income tax returns electronically. If the preparer does not use software to prepare the tax returns, the IRS offers a free service to file them. Filing electronically offers several benefits to clients, which include the elimination of inaccuracies on a return, faster processing times and prompt refunds. Clients who choose to file electronically must present the preparer with last year’s adjusted gross income and PIN number. If the client does not have this information, the preparer can assist the client with contacting the IRS to obtain this information. For clients who would rather file the return through the mail, the preparer must assemble the return, request the client to sign the return, and prepare the envelope.