Tax preparation can be a profitable and rewarding gig, provided you’re suitably educated and certified to do it. Each year, every individual and business in the United States will be required to fill out a tax return, meaning you’ll enjoy the benefits of high, consistent demand for your work, and because there are so many options for a certified tax preparer(s), you’ll always have new opportunities.
The question is, how do you become certified to prepare taxes?
This is more complex than it seems, since you’ll have to consider both federal- and state-level regulations. On top of that, there are different levels of certification required for different levels of representation.
Certified Tax Preparers With Unlimited Representation Rights
Having unlimited representation rights means you can represent any client in many different matters, such as filling out their tax forms, dealing with payment or collection issues, managing audits, and even making appeals.
These types of certified people have unlimited representation rights:
- Enrolled agents: Enrolled agents are specifically licensed by the IRS, and to get that license, they have to pass a 3-part “Special Enrollment Examination.” In these courses, you’ll need to showcase your knowledge on federal tax planning, tax return preparation for both individuals and businesses, and how to represent a client for a more complex problem, like an audit. You’ll also need to pursue 72 hours of new education every 3 years.
- CPAs: Certified Public Accountants (CPAs) are usually certified at the state level, having to pass the Uniform CPA Examination and meet certain experiential and character benchmarks. CPAs can offer a wide range of financial services, and must comply with continuing education on a regular basis (which varies by state).
- Attorneys: Again licensed at the state level, you’ll usually need to pass a state bar exam with a degree in law to become a tax-related attorney. Many attorneys specialize exclusively in tax preparation and planning.
Further reading: Becoming A Tax Preparer: 5 Skills To Help You Thrive
Certified Tax Preparers With Limited Representation Rights
You could also work as a tax preparer with limited representation rights. In these cases, you may only represent a client whose tax returns you have prepared and signed, and only under certain circumstances. You also won’t be able to represent clients for appeals or collection issues, even if you did prepare and sign the return.
- Annual filing season program participants: If you don’t fall into one of the three categories listed above, but you pursue a minimum number of continuing education hours in a given year, you may qualify for an Annual Filing Season Program Record of Completion from the IRS. These holders have limited practice rights.
- PTIN holders: Any person can apply to get a preparer tax identification number (PTIN), which is required to prepare tax returns. Preparing tax returns is the only privilege a PTIN can grant. There are few federal prerequisites for getting a PTIN; as long as you can provide proof of your identity (i.e., with a social security number and basic personal information), you should be able to get a PTIN in just 15 minutes with an online application.
Basic Skills and Education
As you’ve seen, you don’t necessarily need a formal education or a formal certification to prepare basic tax returns; most of the complexities arise when representing clients for matters like appeals or audits. If you plan on preparing taxes professionally, however, you should have the following at a minimum:
- High school diploma: A basic high school education is generally recommended before you attempt to become a tax preparer. This will equip you with several foundational skills, including familiarity with mathematics and law, and will also serve as a meaningful credential to clients considering enlisting your services.
- Mathematic skills: You’ll also need to have some basic math skills. Most IRS forms will give you direct instructions, which will walk you through how to fill them out, based on your client’s personal financial information. Still, you’ll need some reasonable competency in math to complete those instructions. For example, you’ll need to (with the help of a calculator), add, subtract, multiply, divide, and possibly manipulate some equations on the fly to experiment and see if there’s a more optimal approach.
- Computer skills: It’s possible to complete tax returns entirely by hand, using paper forms. However, this approach is largely considered obsolete. In most cases, you’ll be using a computer and some kind of accounting program to complete your clients’ returns. Accordingly, you’ll need to be well versed in basic computer skills.
- Client management skills: Provided you have sufficient education, your services probably won’t be significantly better or worse than your competitors’. The real differentiator in successful and unsuccessful tax practices is client management; in other words, how good are you at attracting new clients and retaining existing ones? You’ll need to use a combination of marketing, advertising, and referral programs to keep getting new clients into your business, and you’ll need to keep all your clients happy with open communication, transparency, and commitment to best practices.
Further reading: Maintaining Tax Preparer Privacy and Confidentiality Guidelines
Formal Tax Training
You should also have some kind of formal tax training. Even if you aren’t required to be formally certified as an accountant, you’ll need to have a basic understanding of how taxes work, and how every common IRS form functions in context.
You can learn these skills in a variety of settings:
- Colleges and community colleges: Most colleges and universities offer classes on tax preparation, and if you’re pursuing a degree in accounting, you’ll have to take some of these by default. Depending on where you go, these can be expensive, but if you’re also getting an education in a broader potential career field, they may be worth it. Don’t neglect the possibility of attending community courses, either—especially if you have a qualified teacher running the program.
- Tax preparation firms: Many companies that offer tax preparation services also offer classes or training for individuals to learn how to prepare taxes on their own. These range from completely free to expensive, depending on the size of the company and the intensity of the program. Many of these are also offered online.
- Private training companies: You could also get your tax preparation education from a private instructor, or a private company or organization that trains future tax preparers. These classes often come with peripheral education topics, like marketing and business development.
- Online resources: Finally, you could educate yourself using online resources, like eBooks, videos, and articles. This is perhaps the least reliable approach to education, but is free and entirely under your control.
It’s also a good idea to pursue ongoing education, since tax laws and best practices evolve on an almost constant basis. If you don’t keep up, your tax practice could suffer.
State-Level Requirements
You should also be aware that there may be some specific state-level requirements for you to become a tax preparer, but these won’t affect you on a national level. For example, in California, all tax preparers are required to register online with the California Tax Education Council, which requires you to take a 60-hour initial course and pursue 20 hours of continuing education every year.
In Connecticut, you’ll need to get a permit from the Connecticut Department of Revenue Services every other year. Be sure to check with the requirements of your state before you start attempting to prepare tax returns.
If you’re interested in becoming a tax preparer, learn more about Taxfyle today! We connect tax preparers and accounting services to keep tax experts busy with work, and keep agencies from overflowing with demand.
