Opening a tax preparation practice has a few steps with long lead times and a few that are easy to forget until a client asks. This checklist puts them in order, with the slow ones first.
Start now: the steps that take time
- PTIN. Anyone who prepares or helps prepare federal returns for pay needs a Preparer Tax Identification Number, and it must be renewed every year.
- EFIN. To e-file as a firm you apply to become an authorized IRS e-file provider. The IRS runs a suitability check, and each new principal and responsible official must be fingerprinted unless they provide professional credentials such as CPA, attorney or enrolled agent. There is no fee, and approval can take up to 45 days, so apply well before the season.
- State requirements. Some states register or license paid preparers, and many have their own e-file and education rules. Check your state's tax authority before you take a client.
Set up the business
- Choose a business structure and register it, open a business bank account and separate your finances.
- Get professional liability (errors and omissions) insurance quotes.
- Write your fee schedule and decide how and when you collect payment.
Protect client data from day one
- Appoint yourself or someone else as your information security lead and write your plan. The IRS provides a template and the FTC Safeguards Rule applies to tax preparers: the plain-English checklist.
- Turn on multi-factor login everywhere and stop taking SSNs by email.
- Learn the IRS e-file rules in Publication 1345, including how Form 8879 is signed and kept: Form 8879 for tax preparers.
Build your client process
- An engagement letter template, reviewed by an attorney: what to include.
- A document request that fits each client: the checklist.
- A plan for late documents: the playbook.
- Know the paid-preparer due diligence requirements for credits such as the earned income credit, child tax credit and head of household filing status (Form 8867).
Choose systems you will actually use
A client portal for documents, messaging and e-signatures; tax preparation software that supports e-file; and a way to bill and get paid. Fewer separate tools means fewer places client data can leak and fewer things to keep up to date. VYAX combines the portal, e-signatures, engagement letters, invoicing and reminders, and it starts free: see the free plan.
This article is general information, not tax or legal advice. Requirements change and vary by state; confirm each item with the IRS and your state.