Starting a Successful Seasonal Tax Preparation Business

Readers of this blog are always looking for a side hustle. Seasonal tax preparation is a perfect fit for many early retirees. A small tax preparation business allows for an earlier retirement as the side income can easily be enough to live on for even a modestly frugal person. Another large reader demographic involves the accounting industry. There are plenty of blogs talking about tax issues, but few discuss the realities of starting, promoting and maintaining a tax practice.

I touch on the subject of practice building periodically, but my email folder is filled with requests for a more detailed post. A recent email from someone called Speed (I love it!) asked a series of questions that encompasses the bulk of practice management requests.  Much of what I discuss can be applied to most other business ideas with only slight modifications.

Rather than give a play-by-play on starting and managing a tax practice, I will take each of Speed’s questions and answer them. The reason for avoiding the play-by-play is because there are many ways of starting a successful business. I don’t want to give the illusion you are locked into one pattern to win. Life is rarely that neat.

How exactly did you start preparing tax returns for others? Recommendations for someone wanting to do the same?

Preparing taxes as an occupation came by accident. You see, back when I graduated from high school the economy was really bad in NE Wisconsin. Not only were businesses not hiring, they wouldn’t even waste the time or paper allowing you to fill out an application. It was a good thing since I never intended on working for the man anyway.

What I did have was a work ethic instilled growing up on a farm. The family farm went bankrupt a few months after I graduated high school, however. My dad suffered but refused to quit. He started a business repairing bottom unloaders in Harvester silos, the blue silos you see around the country. Without any other employment options I took a job working for dear ‘ol dad. As fate would have it, dad hated bookkeeping and taxes so he left the task to me. Well, sitting in a nice warm office pushing numbers sure beat the hell out of busting ass in a dark silo room.

Things were tight back then with the economy and all. I worked long hard hours and came home from a long day of ball-busting work to balance the books. I was paid as you would expect an old farmer to pay his son. When employees asked me to prepare their taxes I agreed to do so for $20. As small as that sounds, it was a fortune compared to what my dad paid me per hour. Then vendors asked me to prepare their taxes. (Vendors paid more than $20.)  Spring was a joyous time of year with all the extra cash flowing in. My first paid tax return was in 1982 when I was a senior in high school.

I hated the silo business so I quit a few years later. Investments and zero spending turned my nest egg into a tidy sum. It was 1986 by now and part-time tax work coupled with investments was enough to live a very Spartan lifestyle and I did. Then I met Mrs. Accountant. (Don’t laugh!)

A year later we were married and I was working as a custodian at her church for $7.85 an hour. (A respectable husband works, you know.) A year of that and I quit and went taxes full-time out of my home. I figured it was still respectable to work 2 ½ months a year and do what I want 9 ½ . Five years later I had a store front and more employees than I ever imagined.

My recommended study course for the enrolled agent exam.

For normal people starting today I would recommend working for an experienced tax professional for a few years and studying for the enrolled agent (EA) exam. You could also open shop out of a spare bedroom, accepting only basic returns until your skills improved which is what I did. After two full-time tax seasons I passed the EA exam and moved to the next level. I was beginning to learn how much I did not know.

Either a few years working for an established firm or starting with basic returns on your own will increase your tax knowledge and help you understand how tax returns flow. Tax preparation is a great side hustle or career. It is what drew me to the professional. That and my love of numbers.

Wondering if you can offer advice on how to start prepping tax returns for others (seasonally)? I have a similar philosophy as you regarding the role of finance and the tax code and would like to both learn more and maybe monetize this interest. Hypothetically speaking, if someone approached your company wanting to work for you, what strategies and know-how would they need to have expert knowledge of? 

Starting a seasonal tax practice out of your home is easy. The initial investment is much smaller than in the past with the cost of computers much lower today. You will need a computer, printer and professional grade tax software. I recommend Drake Software for tax professionals. (Dear Drake Software: Please institute an affiliate program so I can get paid for all the business I am sending you. Thank you.) I recommend Drake because it is very user friendly and their support is awesome.

If I were starting today from scratch I would focus on a niche. I would focus my studies in one area and kill it. Rental real estate is a perfect example with the relatively new repair regs and cost segregation rules. You can impress landlords with stuff they probably didn’t hear before so you look like a god to real estate investors.

Someone approaching me for a job should have the following attributes: outgoing and friendly attitude (clients trust people they like); proficiency using basic software like Word and Excel; a working knowledge of tax software; a working knowledge of the tax code and how to apply it on a tax return. Tax knowledge and application are two very different animals. I know people with massive tax knowledge who don’t know where stuff goes on the return. A tax office deals in application. Learn it. You don’t need to know everything about the code. Get good at one area and expand from there. If you are a master at individual returns, you are hired. If you are a genius at business returns, you are also hired. Get good in at least one tax area and be willing to take direction.

Where/how do you train them from there? Specific resources you require or recommend? Can you offer any more details in your own education of working towards being an accountant (but not going back to school for the degree)?

I train differently than most. Once you have the basics down I make you review the work of other preparers and work with said preparers to improve their performance. Reviewing the tax work of others gives you a different perspective and grows your skill sets. Then I review your review until you can walk on your own.

Whether you intend to get your EA or not, I expect you to study for the exam until you have it down. The IRS EA program is exceptional. If you can master the EA you will be well on your way to being a top-notch tax professional.

Every part of the country has continuing education courses for tax professionals. Search engines will give you plenty of options. Most of the classes are one day with some going two or three days. These are power-packed programs. You will not absorb it all. Take the workbook that comes with the course and keep it next to your desk. CPAs need 40 credit hours of CE per year (none has to be in the tax field) and EAs are required to take 72 credit hours every three years with no year having less than 16 credit hours (an average of 24 hours of CE per year). All EA continuing education classes must be in federal taxation. Don’t take online courses! Sit in the classroom! It is important. The online programs are fast and easy credits but all too often provide no real increase in tax knowledge. You want to get good, not slide by on the minimum.

For the record, I have no college degree. Does that blow your mind? Enrolled agents do not need any other education degrees to have a constructive career, full- or part-time. Study for the EA. Study for the EA. Did I say that yet? You must study and pass the EA exam! Then you keep learning until the EA exam is old hat. Study. Then study some more.

Buy a Quickfinder (will any of these companies start an affiliate program so I can turn some coin referring them?) every year and read it. Use it as a reference whenever needed. It is a good start. When you use the restroom you have reading material. (Stop laughing! I’m serious.) When you want to watch TV, either read EA study materials or your Quickfinder.

If you do all these things you will not need me to tell you where to study next. You will know. You will have new questions all centered on complex tax issues where even the Tax Courts around the country don’t agree with each other. Then you should ask me for a job. Please.