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Tax Preparation

Tax PreparationA common request the last few months involves starting a tax preparation side gig. A seasonal tax prep business can be rewarding if you follow a few simple rules. And if it spirals out of control you might find yourself working a full-fledged business 30 years later like a certain tax professional we will not name.

Tax Preparation Side Gig

To run a real tax preparation side gig you will need some background tax knowledge, an e-filing account with the IRS, commercial grade tax software, workflow management and clients. We will touch on each issue.

Education/Experience: Experience comes with time; there is no shortcut. I started on day one like everyone else. In the beginning it’s best to stick with simpler returns to avoid getting in over your head.

Continuing professional education in tax preparation is widely available in the tax industry due to the requirements for CPAs and enrolled agents. This makes it easy to learn while you gain experience.

The IRS’ Registered Tax Return Preparer program ended in 2013, but you can still be a part of the Volunteer Annual Filing Season Program (AFSP). Without involvement in the AFSP it’s hard to work with the IRS on a client’s account. CPAs, enrolled agents and attorneys have unlimited representation rights before the IRS. A participant of the AFSP has limited representation rights. As you begin your side gig journey this is a great place to start.

It’s relatively easy to be an AFSP. You need 18 hours of continuing education from IRS-Approved CE Providers: 10 hours of federal tax law topics, 2 hours of ethics and a 6 hour Annual Federal Tax Refresher (AFTR) every year.

I have never been a minimum education type of guy. Generally CPAs need 40 Continuing Professional Education (CPE) credit hours per year; enrolled agents an average of 24. In a typical year I approach 100 hours of qualified CPE! If I’m going to do something I may as well do it at a high level of competence. I recommend you complete at least 40 CPE credits per year. The cost is a business deduction.

As you grow your tax preparation practice you will want to add some letters after your name. I suggest the enrolled agent designation. EAs are a tax authority and have full representation rights before the IRS. EAs can also represent clients of returns someone else prepared, unlike AFSPs.

The EA exam is tough, but worth the effort. Here is the study guide I recommend. Take your time when working for your EA. Use the study guide and study and study and study. About a third pass the first time through. Success is in direct proportion to dedication of studies.

IRS-approved continuing education programs I approve for tax preparation

Surgent CPE: It’s been a few years since I attended a Jack Surgent program, but they were always packed with solid information. Highly recommended.

Tax Insight: I attend Tax Insight’s Annual Tax Preparation Course every year. They are located in Wisconsin, but they also have a few classes in Mississippi, plus they are starting an online version this month.

National Association of Tax Professionals (NATP): I was a member of NATP for years, but they were a bit pricey for what they provided. Recommended if no other options available in your area. NATP also has EA exam preparation classes and an AFTR refresher. NATP members also have a tax research help line.

Gleim and WebCE: If you need something fast, cheap and easy you can use these two options. They are not recommended because the courses are very basic. Remember, we want more than minimum effort.

Tax Preparation Next Steps

Once you start your side gig in tax preparation the educational programs will find you. Each state has its own list of providers. Feel free to experiment. The only way to find good programs is to try them out.

Become an Authorized IRS e-file Provider: Rather than list the details I will send you to the IRS page to complete the process. It takes about a month and a half to complete the process so start ASAP. Back in my day it took four months so things have improved a bit.

Commercial Tax Software:  My office uses Drake Software and has since 1988. Drake has always been as easy to use program with commercial grade power. I’ve been with Drake so long my account number with them is 197!

I’ve found new preparers find Drake easier to navigate than other commercial tax software. I’ve played with other software over the years, but never was tempted to leave Drake. Their support is second to none. They answer fast with a dedicated team ready to help preparers get the job done right.

Drake is a powerful tax software package at a reasonable price. You can license the full package or pay by the return. Review Drake’s pricing to determine which package fits your side gig needs.

Workflow: I started my tax practice out of my home and prepared around 2,000 returns annually (with the help of employees) for five or six years before moving to my retail storefront. When I ran my practice as a side gig it was always out of the home. From 1982 to 1989 I treated tax preparation as a side gig. I ran a full-time seasonal tax practice from 1990 to 1995 out of my home. Then I lost my mind, bought an office building and watched my practice explode. I tried, and mostly succeeded, in cutting back ten years ago. Then this blog and a push from Mr. Money Mustache happened.

Workflow issues are a constant challenge in a tax office. Even as a side gig you want to utilize technology to improve performance, reduce errors and remain profitable. I can’t tell you everything my office does because it’s always in flux. I do want to share one thing we do to keep the paper moving.

Tax preparation is largely data processing. The real value for the client is the conversation with the accountant. A simple, short dialog can save the client serious money! The problem is the workload of paper to process.

Tax Preparation and Gruntworx

Plugging every number starts to affect the carpal tunnel. It’s also mind numbing. My office uses a tax organization program called GruntWorx. Be sure to read my GruntWorx review. GruntWorx is integrated into six commercial tax software programs: All Tax Software, Lacerte, Go SystemTax RS, CCH ProSytem Fx, UltraTax CS, and of course, Drake Software.

A compact research book.

You want a paperless office so you’ll be scanning everything in for your record. From inside Drake Software you attach a file with scanned documents GruntWorx handles and send securely. The next day GruntWorx returns a file you import into your Drake software. Several items will need attention, but a large part of the grunt work is processed, saving you time and money. Review GruntWorx pricing to see how much it helps your side gig workflow.

Technology is your friend even with a seasonal tax preparation side gig tax practice. You want a good computer, Drake Software, laser printer, scanner and security. Contact an IT professional to secure your data!

Tax preparers are a prime target of identity thieves! When Equifax was hacked most of the data stolen was already on the dark net! It came from small tax offices. You read that right, small tax offices. My office IT contract is north of $50,000 per cycle. As a side gig you will have few if any employees so your IT needs will be smaller. My guess is security will cost under $1,000 for most side gig firms.

Technology reduces stress and errors. The computer can read small type on W-2s better than you after hours in a chair. Note, even when using GruntWorx or other productivity enhancements, you must still review each return in its entirety!

How to Acquire Clients in your Tax Preparation Biz

I’ve talked about acquiring clients plenty in the past. Here is a short review.

As a side gig you want basic returns to start until you get your sea legs and gain experience. Decide which type of returns you want to prepare.

Once you’ve decided the focus of your tax side gig you need to study. Maybe a few study courses listed earlier are a good starting point. Take classes on your area of interest.

Clients outside your area of expertise will come knocking. It’s hard, but necessary, to turn some clients away rather than get in over your head.

In your area of practice you need to find where these people congregate. If you want to help elderly people I recommend speaking at churches on Sunday. You might even offer to prepare returns right at the church service. Portable printers and a laptop (with adequate security in place) make it easy to travel. One day a week at a church might satisfy your side gig lusts.

The Chamber of Commerce is a great place to meet business owners; one speaking engagement at the local apartment association will keep you busier than you want. There are so many places where you can grow your client list.

Get some business cards from Vistaprint and carry them with you. You never know when a future client crosses your path on August 4th.

Final Thoughts: Tax preparation is an enjoyable side gig with plenty of profit potential. If you start with smaller returns you can do a lot in an hour. Three hundred simple returns at $100 each is a nice side gig. After expenses you should net over $20,000 in this scenario. Not bad for two and a half months during winter.

Most of the questions I receive are repeats. Please leave questions in the comments below so everyone can benefit from the answers. I’ll answer as many as I can.


Tuesday 25th of September 2018

Hi Keith! I know this is an old thread, but it's one I keep coming back to, as I get closer to striking out on my own with tax preparation. So, first off, thanks for posting this one!

Next question is, do you track or have you seen Mark Kohler? If so, what are your thoughts on his strategies? I've been watching him on some CE videos, and I like the strategies, but I figured I should ask a more seasoned preparer what they thought before I become a groupie. :-)


Jerry Gordon

Monday 11th of December 2017

I did VITA a number of years ago. The training for it IMO was subpar. I already had the knowledge, took the test and passed. I loved working with the the seniors the only problem I had was that the people would come in that weren't seniors and I would have to tell them I couldn't do their taxes


Saturday 9th of December 2017

Thank you Keith for the information! This post came at the right time for me and cleared so many doubts and fears I had ( still have some but in a more manageable way). I'm currently preparing for CPA tests but I have been working in Accounting for several years. I've helped a few friends to file their tax returns but I was hesitant to expand my assistance to others because of fear that I wasn't a CPA (yet) or an EA . I'm now signed up for the IRS AFTR and looked into VITA. I live in a small resort town and hope I can give back to my community this way. You covered some of the liability insurance questions I had (E&O coverage) but what other insurance would you get if you are also asked to do their bookkeeping and some consulting? I look forward to more updates about Camp Accountant!

Jerry Gordon

Monday 11th of December 2017

I did VITA a number of years ago. The training for it IMO was subpar. I already had the knowledge, took the test and passed. I loved working with the the seniors the only problem I had was that the people would come in that weren't seniors and I would have to tell them I couldn't do their taxes

Keith Schroeder

Saturday 9th of December 2017

Ursula, E&O probably covers all the areas you mention. You want a serious discussion with your insurance provider to verify you're covered.

I didn't mention the VITA program before, but it's a great place to start learning tax preparation skills. The voluntary program usually has retired tax professionals and IRS/state tax agency agents managing each site. Imagine your favorite accountant retiring and backing you up at a VITA location! You will pick up a lot of helpful skills in such an environment. One thing to note, most tax returns prepared by the VITA program are from low income and elderly people. This means you'll get additional experience with all the credits surrounding these types of return and the fraud issues to look out for.


Saturday 9th of December 2017

Keith, thank you for all your excellent info! How would you compare the EA prep book by PassKey to an online EA prep course, like that by Gleim?


Keith Schroeder

Saturday 9th of December 2017

Gleim and PassKey are both good, but I like PassKey better, Tracey. I use PassKey to train in my office. Several years ago PassKey saw my tax writing on another site and asked if I'd write for them. I said no, but was flattered enough to be biased ever since. (What can I say? I'm a weak man!)


Friday 8th of December 2017

Keith, why would anyone choose a human tax preparer (as opposed to say TurboTax) if they have a basic, simple return to file? Isn't it cheaper and faster to do it yourself? What kind of clients still prefer human help and why?

Keith Schroeder

Friday 8th of December 2017

Victoria, the answer I gave Eric applies to you. You also assume everyone with an easy return wants the hassle of TurboTax. Even as my prices have climbed over the years many very simple returns don't leave. I know it's overpriced; they know its overpriced; and we talk about it. Some people just like coming in. Some people have other financial non-tax questions. People have their reasons. And some people are not tech savvy or don't trust TurboTax. I still have one client who refuses to efile over fear if identity theft when mailing a return is riskier. People have their reasons.