Like Numbers? How to Start Your Own Tax Firm
Are you the savvy tax type who consistently impresses your friends and family year after year with the money you get back on your tax return? Maybe they’re wondering if you’re some sort of wizard, or how you’re hacking the system, when really you just know how to play the game: file the right status, maximize your deductions, and make retirement contributions strategically.
Once enough people start asking for your tax advice, you might start thinking to yourself, “Hey, I can make a business out of this” After all, free advice gets a little old, and as great as those Starbucks gift cards may be, you have a life, too—and your time deserves to be compensated.
Before you start a side hustle or a full-time business with your own tax firm, there are a few things you should know. If you cut corners or forget to file your own small business’ taxes, you (and your new clients!) could run into some hot water with the IRS, which is definitely the opposite of your entrepreneurial goals.
Keep these steps in mind before offering your professional services and you’ll be in smooth sailing for this upcoming tax season and beyond.
Get legit
Take these tips from a tax attorney: if you don’t turn your skilled hobby into a “real job”, you could face some serious consequences. Sure, your friends and family might trust you to house-sit, watch their dog on vacation, or take your general tax advice, but once they officially hand over their tax-filing obligations, they’re giving you a lot more responsibility than just making sure Fido is fed and let out twice a day.
In order to start a tax firm and create a legitimate business, you’ll need to:
- File paperwork and form a company with your respective Secretary of State
- Obtain an Employer Identification Number (EIN) from the IRS… that’s right, you’re your own employer now!
- Obtain an Electronic Filing Identification Number (E-FIN) in order to become a registered tax preparer with the IRS using Form 8633
- You might also need an Electronic Return Originator (ERO) Personal Identification Number (PIN) depending on your type of clients and filing method, as well as a Preparer Tax Identification Number (PTIN) for you and any potential employees, if you don’t already have one
The paperwork can be quite a doozy, but dotting your I’s and crossing your T’s is the most important step in starting your own tax firm. You want to do this the right way, from day one, before all your hard work gets swept out with the rug beneath you.
Set up shop
We don’t necessarily mean a “physical” shop, per se, but whether you’re establishing a storefront or an in-home office, you need to properly equip your workstation to set yourself up for success. You might have dreams of a flashy sign lighting up the downtown boulevard, but when you’re just starting out, consider working from home if possible. It’s a great way to save money on rent while you establish a clientele base, plus you probably already know that home offices are one of the many self-employed deductions available to your new business.
When you begin to invest in your necessary business supplies, know where to save pennies and where to drop the big bucks. Some luxury items, like that ergonomic office chair, might not fit within your start-up budget. However, other must-haves, like top-of-the-line tax preparer software, are definitely worth the expense. Balance these office essentials in your overhead costs (and do so ahead of time, before you start shopping!):
- Business laptop or computer
- High-volume printer and efficient ink cartridges
- Document scanners and cloud-based storage (to cut down on the cost of paper and ink)
- Appropriate tax software
- Personal planner or productivity app
- Office desk, chair, and organizer
- Business insurance
Get the buzz going
Now that your paperwork is in place and your office is ready to open, it’s time to get the word on the streets about your tax firm services! Family and friends are great for spreading the news via word of mouth, and so is social media (just remember to take down those less-than flattering photos).
To encourage clients to make the switch from their current accountant over to your services, think about offering a referral program that scores each client a discount per reference. Or, find a niche market that can gain you specified taxpayers. For example, maybe you worked in the industry before opening your firm and want to help maximize deductions for servers and bartenders, or maybe it’s your mission to help veterans earn more money back on their tax returns.
Find your target, point your arrow, and fire your shot. It may take some time and energy, but you can get the ball rolling in no time.