Discussion:Starting Tax Prep Business as a Second Job

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CPArkansas (talk|edits) said:

19 November 2013
Hey all,

I am starting to research the possibility of opening my own tax practice (really just doing returns myself than anything) to run as a second source of income to my full time job. I was hoping to get some input into the details of running a small business on the side. It's my hope to test out this side business with my wife (she isn't a CPA/EA/anything else but is familiar with tax and will soon be able to stay home full-time when our 1st child comes...a big reason why I want to supplement the family income with a side job). I'm not trying to move quickly. I have been preparing returns free of charge for family the past 3-4 years and thought this 2014 tax season could be the first I branch out and take on paying clients.

From the quick research I have gathered so far, these should be my first steps.

Obtain a PTIN and the ability to file electronically Register a company with the Secretary of State Get tax prep software and printer Set up a home office space Marketing

1. Obtaining a PTIN and E-file ability should be easy enough 2. Registering a company with the State should be no problem but I don't know what type of business is best. I'd lean towards an LLC at first thought to protect personal assets, but is an LLC enough? I may do as few as only 10-20 returns if I simply don't get the customers the first year (I would say I would max out at 50 returns if things went well). Is this even this few of returns enough to warrant buying Errors and Omissions insurance? I have no idea the best way to protect myself while working at such a small level 3. I have the printer, but do I really need tax software for operating at a small level? I have used free interactive PDFs from the IRS for my own tax returns and family members tax returns. I feel like I could do without the software until I know this side business is a lasting one. 4. Home office space is already complete 5. I plan on marketing (not using the CPA initials because I heard that can get sticky) with business cards, local signs, friends/family word of mouth, Craigslist, social media, free internet advertising websites. Probably buy a dedicated "go-phone" for business calls only.

Is there anyone who can help me add somethings I will need to do to make sure I have a legit, protected side business? Any critiques or changes?

Like I said this is a starting out as a side job for me. Just a little extra money for my family and maybe the chance to own my own tax prep business one day, but right now I definitely cannot work under another CPA, buy a CPA firms/client list, or anything else like that.

Thanks for any advice and God bless,


Graycoast (talk|edits) said:

19 November 2013
I'll let others chime in on business issues, but I would just like to address the software issue. Drake software, and several other companies, offer a pay per return option that works great for starting up. I just think it is worth it to have the software in terms of time saved, and ease of efiling, etc. I just think the fillable pdfs would be time consuming, and how would you efile with those? Also the info entered will carry forward and make it that much easier for preparing returns for returning clients. And there are tutorials and practice returns available which would help your wife get up to speed.

Go phone or other is a good idea, once you call clients on a personal phone they keep that number and will use (and abuse it).

Good luck!

PDXTaxman (talk|edits) said:

20 November 2013
You really ought to complete your profile here so that TaxAlmanac visitors can know a bit more about you. Only by your handle, CPArkansas, do we get a hint at your credentials, for example.

I second what Graycoast says above about software. PDFs are not a professional or solid way to do it. Can't e-file, can't really carry forward information, no error checking, very easy to forgot to include necessary forms or schedules, etc. Drake is DOS-based (with a WIN fig-leaf), but it is robust, accurate, with excellent customer support, and affordable, according to all reviews I've read.

It's fine, I guess, to use your wife so long as you thoroughly review her work. But if you and she are serious about it, she should enroll in at least a standard introductory tax preparer's course. Most run about 60 class hours if they're any good. In Oregon, they ran 82 hours per state requirements for licensing. They are not a weekend operation. They take a couple of months or more to go through and pass successfully, but they are worth every minute invested. Since you are reviewing her work, however, it's not like she'd have to rush off and take the class before beginning the operation.

As a CPA you doubtless have CPE requirements every year, but CPAs cover a vast field of disciplines (accounting, audits, as well as taxes). Be sure to take some tax update CPE every year, and maybe a class or two to hit areas you feel weak in as well, even if you feel obliged to cover other areas for the benefit of your regular day job.

There are some very affordable E&O policies with limited coverage that will meet your needs. Check through groups like the Assn of Tax Consultants to see if they recommend anything. My first policy, which we kept a couple of years, only cost something like $250 or $300 a year. It would not meet our needs now, but was fine getting started.

Why would you not use your CPA credential to better establish your credibility? Check with your state CPA society for their rules, but the only way it can seriously "get sticky" is if you claim to be a CPA when you're not actually one. It might, I suppose, annoy your current employer, but just doing anything on the side might annoy them.

Good luck.

LadyLiberty (talk|edits) said:

24 November 2013
The CPA Society in NY tax updates focus on issues that you probably will not see. I suggest joining NAEA, they are "America's Tax Expert" They send you a weekly e-blast plus a magazine each month that gives you CE if desired. They also have local chapters, so you should join your state group. All states have chapter meetings which will give you local contacts of your peers.

NAEA members can get their E&O policy from them. We also have a web board that will help you. I also belong to the California state chapter, which I think is around another 40 dollars, because they are the home of the EA. They provide the e-blasts plus the magazine. They also as NAEA have webinars, which are very reasonable and extremely helpful.

To cover your back with your employer, if legal for Federal and State as a partner or name on your business mailings. This way when your employer questions why you are advertising a tax practice, you can say that it is your wife's business but uses you as the draw.

As for the other poster's they are correct, get a real tax package. I use Ultratax and they also have a pay as you go, which is what you would need. They as Drake have tutorial that are excellent for you and your wife to get on board.

When you purchase your software. They also give you last years package, and you can learn by re-inputting all your family returns and then you can learn how the data flows through the tax returns.

Do not forget that all clients MUST sign engagement letters, and must sign that you spoke to them about FBARs. We take a copy of the clients car license and keep on file. Even if you know the taxpayer from high school.

Good luck, and congrats on your future family!

PDXTaxman (talk|edits) said:

24 November 2013
LadyLiberty, what part of California are you in?

CPArkansas, I'd add that Lacerte -- and, I suspect, virtually all professional tax programs -- don't just provide the previous year's program. If you were to buy Lacerte 2013, you'd be able to download and install as many years back as you wanted. Maybe some programs charge if you want more than one back year, but that's rather unkind if true. Do enough returns and you WILL have multi-year non-filers come in, and when that happens you'll be very glad you can handle their problems without much hassle.

LadyLiberty (talk|edits) said:

25 November 2013
   I am not from California but from the state that houses LadyLiberty aka New York.

PDXTaxman (talk|edits) said:

25 November 2013
Lady Liberty, that makes sense of course. I asked because you mentioned you joined the NAEA California chapter, so you can understand my confusion. Thanks for the clarification.

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