How to become a tax preparer

Tax preparation is a dynamic and essential career, providing vital services to individuals and businesses in navigating the complexities of tax laws.¹ This guide delves into what a tax preparer does, the qualifications needed, available tools for productivity, and the day-to-day realities of the profession.

 

 

What Does a Tax Preparer Do?

 

At its core, a tax preparer prepares, files, or assists with general tax forms.² However, the scope of their work can expand significantly based on their credentials and representation rights. They serve a dual role, aiming to help clients comply with state and federal tax codes while simultaneously minimizing their tax burden. This requires a strong ethical compass, as they must diligently adhere to IRS regulations and avoid facilitating fraudulent returns.³

 

Beyond basic form preparation, qualified tax preparers can:

• Defend taxpayers with the IRS, including representing clients during audits and addressing tax court issues.
• Complete complex tax schedules and forms that require specialized knowledge.
• Determine a client’s tax liabilities by evaluating their legal and financial circumstances.
• Prepare and organize tax returns and supporting documents after gathering all necessary information.⁴

   

• Assist clients through tax complications related to significant life transitions such as divorce, marriage, birth of a child, or death of a spouse.

 

How to Become a Tax Preparer: Qualifications and Requirements

 

Becoming a tax preparer is a multi-step process that emphasizes knowledge, technology, and official registration.⁵

 

1. Know-how: This involves acquiring a deep understanding of tax laws and regulations. While formal degrees aren’t always a strict requirement, investing in professional-grade, industry-specific tax research platforms and continuing education is crucial.⁶ Many start with individual tax returns (Form 1040s) and gradually expand to more complex business or specialized returns as their expertise grows.⁷

    

2. Technology: Modern tax preparation heavily relies on technology.⁸ AI-powered tax software is becoming standard for managing daily tasks, improving efficiency, and facilitating growth.⁹

    

3. Clients: Success hinges on attracting and retaining clients.¹⁰ Many preparers begin on a small scale, focusing on individual returns, and later expand to offer more personalized advisory services as their knowledge and reputation build.

    

4. Preparer Tax Identification Number (PTIN): This is the fundamental IRS requirement for anyone who prepares tax returns for compensation.¹¹

    

   • How to get a PTIN: The process begins on the IRS website and requires annual renewal.¹² There is typically a fee for initial registration and renewal (e.g., $19.75 for 2021-2024).¹³ You will need to provide your Social Security Number, personal and business information, and potentially information about any tax obligations or felony convictions.¹⁴ If you have not filed a U.S. federal tax return in the past four years or do not have a U.S. federal income tax filing requirement, you may need to submit a Form W-12 with supporting documentation like a notarized copy of your Social Security card and photo ID.

      

   • Requirement: Every paid tax preparer must have a PTIN and include it on every return they prepare.¹⁵

      

5. IRS Tax Preparer Certification (and Representation Rights):
   • The basic IRS requirement is a PTIN.¹⁶ However, for representation rights (the ability to defend taxpayers before the IRS), you must be an Enrolled Agent (EA), a Certified Public Accountant (CPA), or an attorney.¹⁷

      

   • Enrolled Agents (EAs): Federally licensed tax professionals who achieve their status by passing a rigorous three-part Special Enrollment Examination (SEE) administered by the IRS and passing a suitability check.¹⁸ They have unlimited representation rights before the IRS.

      

   • Certified Public Accountants (CPAs): Licensed at the state level, CPAs must meet specific education and experience requirements and pass the Uniform CPA Examination.¹⁹ They also have unlimited representation rights.

      

   • Attorneys: Licensed attorneys have unlimited representation rights.
6. State Licensing: While a federal “license” beyond the PTIN isn’t universally required, seven states currently require a separate credential or license for tax preparers operating within their borders:
   • California
   • Connecticut
   • Illinois
   • Maryland (though not always strictly defined as a “license,” it has specific registration requirements)²⁰

      

   • Nevada²¹

      

   • New York²²

      

   • Oregon
   • Many states exempt CPAs and those with other professional credentials from this additional state requirement.²³

      

7. IRS E-File Requirements (EFIN): For preparers filing more than 10 returns in a given year, electronic filing (e-file) is mandatory. This requires an Electronic Filing Identification Number (EFIN).²⁴

    

   • What is an EFIN? An EFIN is a unique number assigned by the IRS to firms approved to participate in the federal and state e-file program.²⁵ One EFIN is generally required per firm or physical location, not per individual preparer (though individual preparers need a PTIN).²⁶ An EFIN does not expire unless the firm’s EIN or name changes.

      

   • How to get an EFIN:
     1. Create an IRS e-Services account: This is a prerequisite and can take several days. All principals and responsible officials in your firm must also sign up for e-services.²⁷

         

     2. Submit your application to become an authorized IRS e-file provider: This lengthy application typically takes up to 45 days for approval. You’ll need to provide firm identification, select “Electronic Return Originator” (ERO) as your e-file provider option, and submit information about principals and responsible officials.²⁸ If these individuals are not CPAs, EAs, or attorneys, they will need to provide fingerprints (arranged by calling the IRS toll-free or through commercial services/local police stations).²⁹

         

     3. Pass a suitability check: The IRS conducts a suitability check on the firm and each listed individual, including a credit check, tax compliance check, criminal background check, and review for prior e-file non-compliance.³⁰ Upon approval, you receive an acceptance letter with your EFIN.³¹

         

 

How Long Does It Take to Become a Tax Preparer?

 

The simplest answer is the time it takes to obtain a PTIN and EFIN (potentially 1-2 months combined, assuming no delays). However, becoming a seasoned and proficient tax preparer takes longer:

• First 2 years: Focus on learning the basics of tax preparation, often involving raw data entry.³²

   

• By the 3rd year: You gain sufficient experience and skills to work as a full-fledged staff preparer.³³

   

• After 5 years: You typically develop expertise in niche areas and nuances of your practice, differentiating yourself in the market and enabling more specialized advisory services.³⁴

   

 

Common Tax Forms Prepared by a Tax Preparer

 

The types of returns vary with experience and client base, but generally fall into two groups:

• Individual Forms: Primarily Form 1040 (U.S. Individual Income Tax Return) and its associated schedules (e.g., Schedule A for itemized deductions, Schedule C for sole proprietorships, Schedule D for capital gains/losses, Schedule E for rental income).³⁵ Most preparers start with 1040s due to their relative simplicity and easier client acquisition.

   

• Business Returns: Including forms for corporations (Form 1120), S corporations (Form 1120-S), partnerships (Form 1065), trusts (Form 1041), and not-for-profit exempt organizations (Form 990). Many preparers aim to expand into business tax work as their experience grows.

 

Tax Preparer Salary and Fees

 

• Average Salary: According to the U.S. Bureau of Labor Statistics, tax preparers earned a median annual wage of $58,160 as of May 2023. The lowest 10% earned around $29,170, while the highest 10% earned up to $98,810. (Note: Houston, TX has a mean annual wage of $62,700 for tax preparers as of May 2023.)³⁶

   

• Charging for Services: Pricing varies significantly by region, experience, and complexity of services.³⁷

   

  • The National Society of Accountants (NSA) cites an average price of $323 for a Form 1040 with Schedule A (itemized deductions) and a state tax return (as of 2021 data). A Form 1040 with the standard deduction plus a state return averaged $220.
  • Hourly Rate vs. Fixed Fee/Value Pricing: While an hourly rate seems intuitive, many experienced preparers transition to fixed-fee or value pricing.³⁸ This approach charges based on the expertise and efficiency provided, rather than the time spent, allowing preparers to be compensated for their valuable knowledge and quick work. Clients often appreciate value-based pricing as it offers clarity on costs upfront and fosters a collaborative relationship.³⁹

     

 

Essential Tools for Tax Preparers

 

To operate efficiently and securely, tax preparers rely on specialized software and resources:⁴⁰

 

• Tax Preparation Software: Helps manage workflows, automate calculations, and produce necessary forms.⁴¹ Leading professional options include Thomson Reuters UltraTax CS, Intuit Lacerte Tax, Intuit ProConnect Tax, and Drake Tax. These solutions offer federal, state, and local programs, handling various return types (individual, corporate, partnership, etc.) and often integrate with other firm management tools.⁴²

   

• Tax Research Solutions: Crucial for staying updated on tax laws and answering complex client queries. AI-powered platforms like Checkpoint Edge with CoCounsel (Thomson Reuters) provide concise, cited answers, while the IRS website is an invaluable direct source for publications and instructions.⁴³

   

• Firm Management Software: Streamlines operational duties like document management, e-filing assistance, and client communication, boosting overall productivity.⁴⁴ Examples include Onvio Firm Management (Thomson Reuters) and features within Intuit’s professional tax software.

   

 

Keeping Up with New Tax Law Changes

 

Staying current with ever-evolving tax laws is paramount. Preparers should:

• Regularly check the IRS website for updates, publications, and technical corrections.
• Utilize AI-powered tax research assistants like Checkpoint Edge with CoCounsel for quick, accurate answers to specific questions about new rulings.⁴⁵

   

• Read financial literature, industry publications, and tax journals (e.g., from the Journal of Accountancy, The Tax Advisor).⁴⁶

   

• Engage with professional associations and groups through conferences, webinars, and online forums to network and discuss emerging tax issues.⁴⁷

   

• Take continuing education courses (often required for EAs and CPAs) to stay informed on recent modifications and regulatory updates.⁴⁸

   

• Pay attention to state and local tax law changes in addition to federal.⁴⁹

   

Becoming a tax preparer is a rewarding career that demands continuous learning, technological proficiency, and a commitment to ethical practice. With the right qualifications and tools, tax preparers provide an indispensable service to their communities.