How to Start a Virtual Tax Prep Business? (A 9-Step Guide!)

Are you someone who loves preparing tax returns for an agency? Do you wish to make more money based on these skills on your terms? Explore the opportunity of running a tax preparation business from your home. 

Professional tax preparers will remain in demand in the US because of the continuously changing tax code. Last year revenue from the tax preparation, accounting, and payroll services industry in the US made over $155 billion, according to a study by Statista. 

So, if you’re wondering how to start a virtual tax prep business from your home, here is an easy breakdown:

A 9-Step Guide to Starting a Virtual Tax Prep Business

The tax preparation business requires a proper plan to make it successful. Here are our best ways to start a tax prep business that you should most definitely consider:

Define the Business Entity

How to start a virtual tax prep business starts with defining a business entity. This step is one of the most important ones for your virtual business. Based on the individual or company’s needs, decide and structure the business entity. 

Defining the type of business will determine the tax form you will file with the IRS during tax season. The following are a few common business forms:

• Corporation
• Sole Proprietor
• Partnership
• LLC (Limited Liability Company)
• S Corporation
  

Acquiring Accurate Licensing

Your tax prep business without appropriate licensing won’t be considered trustworthy. You must undergo a certification exam to provide EA or CPA services in the United States. This exam will be compliant with the state laws where you will practice. 

So, if you want to capitalize on your tax prep skills the right way, acquiring a license is a must. But if you decide to work non-credentialed, you won’t have to take this exam. Your state might have special licensing requirements or additional steps that you would need to go through. 

Credentials and certifications will differ depending on your tax preparation status. So, don’t forget to check out these requirements. 

Getting EFIN and PTIN

Starting a virtual tax prep business without EA or CPA certification means you need to have PTIN and EFIN. A valid PTIN (Preparer Tax Identification Number) is a requirement that you can get from the IRS without a fee to prepare federal taxes.

An EFIN (Electronic Filing Identification Number) will be required if you file tax returns more than a handful of times every year. Getting EFIN is free, but it may require your fingerprints. 

Don’t Forget Business Insurance

There’s no guarantee that things will always go smoothly while starting a virtual tax prep business. Having your business insured can be a relief in unprecedented, unfortunate situations. 

Consider opting for professional liability insurance that can be molded according to the needs and wants of your business while it scales. The tax laws are ever-changing along with the number of audits; having insurance will keep your business safe. 

Start with Mapping Out a Business Plan

Mapping out a business plan is one of the best ways to start a tax prep business. Consider these few points:

• What’s your target audience? Determine the audience you want to provide your tax prep services to. A target market analysis is the best way to find a perfect customer. Other than small businesses, individuals may also require your services. 
• What’s your marketing plan? This marketing plan should be targeted toward your desired target audience. Consider making business cards and brochures for offline marketing. At the same time, online marketing will include a website, social media accounts, landing pages, email campaigns, and other digital marketing campaigns. 
• Are you going B2C or B2B? It’s essential to know the difference between the two. B2B will target small businesses. You will need in-depth knowledge of employment laws, taxes, etc., to provide services to small businesses. In contrast, B2C means providing services directly to consumers. For this, know your target audience and their pain points. 
• What services are you offering? Determine the type of services you will offer. Jot them down. After that, decide the pricing of these services depending on the ETA and type of client. Research competitors to better understand what they’re offering and then put a price tag on your services accordingly.
  

Purchasing Necessary Equipment 

Do you have the required software supplies and equipment for starting a virtual tax prep business? You will need the following:

• A reliable internet connection
• Tax Software
• Other supplies (folders & coversets, business cards, accounting supplies, digital solutions, etc.)

These essentials will ensure the start of your business runs smoothly without any technical/non-technical hindrances. Just imagine scoring a client and preparing their tax sheets. But you can’t do that manually on paper without a software tool. So, prepare to be more presentable in front of your clients beforehand.

Business Checking Account

After filing for your services with your state and acquiring EIN, you need to open a business checking account. This will have your deposits secured and function as a primary account for your virtual business. 

Decide Your Business Name

Your business name should be unique. See what your target audience researches and create a name according to those search terms. After deciding on a name, check its availability and register it. 

SBA has revealed four unique ways to register a business name:

• Domain name – it protects the business’s website address
• Entity name – it protects the business at the state level
• Trademark – it protects the business at a federal level
• DBA (Doing Business As) doesn’t offer protection but may be required legally
  

Create a Website

It’s uncommon for businesses to have websites. Conduct competition analysis to check what other tax preparation businesses are doing. How they are creating their content and offering services. 

Having a website will make it easy for your customers to find you. Don’t miss out on these outreach opportunities to increase your clientele base.

Challenges For a Virtual Prep Business And Solutions

Virtual prep businesses face different types of challenges when working remotely. One of the most obvious and common problems they face is client trust. It is easy to develop trust if you have a face-to-face interaction. To handle this problem, the virtual prep business needs to focus on communication. Virtual prep businesses should stay connected to the client and keep their clients informed about the progress of their tax returns, explain procedures clearly, and promptly address any inquiries or issues they may have. If they deliver good quality customer service and showcase their expertise they can develop trust with their customers.

Ensuring data security is another aspect for tax preparers. Given the sharing of financial data, safeguarding client information is paramount. Deploying cybersecurity measures like encryption software, secure file-sharing platforms, and robust password protocols is imperative. Regularly updating security measures and staying abreast of evolving threats are essential to safeguarding client data.

Effectively managing teams poses another challenge for virtual tax preparers. Team collaboration enhances efficiency and accuracy in tax preparation tasks. Use video conferencing tools and project management software to facilitate communication and coordination among team members. Set expectations and deadlines while offering support and resources to enable your team to perform effectively from any location.

Moreover, maintaining organization and productivity in a virtual setting demands discipline and efficient time management skills.
Create systems and procedures to make processes more efficient, prioritize tasks, and reduce interruptions. Continuously. Fine-tune your methods to enhance effectiveness and output.

By taking a proactive approach to tackling these obstacles and implementing plans to conquer them, remote tax preparers can effectively run and expand their businesses in the realm.

 

Conclusion

Remember that virtual tax businesses are growing in number every year. To make your business successful, create a perfect business plan. Use the best SEO strategies to make your virtual prep business visible in the digital world. 

Lastly, your branding and logo should reflect the values, goals, and solutions you will provide to your customers. You’re doing a customer-centric business. So, make it more about your customers than yourself and you should see success in your business. 

This is all you need to know about starting a virtual tax prep business. Follow these necessary steps to gain maximum advantage for your business.

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