Do you need a license to prepare tax returns?
The short answer, like so many things in the tax and accounting industry, is… it depends. You don't generally need a license to prepare federal tax returns unless you plan to represent clients to the IRS.
While a PTIN is the starting point for any tax preparer, it's not a "license," per se. There's no specific license requirement to prepare federal tax returns. However, to represent clients before the IRS, you need to be an enrolled agent, CPA, or Attorney.
When it comes to state taxes, however, there are currently seven states that require a license to prepare tax returns for compensation in those states. Those states are:
For those professional tax preparers who are CPAs, or have other professional credentials, many states name them as exempt from the licensing requirement.
What are the IRS e-file requirements for professional tax preparers?
How to become an authorized e-file provider has already been covered in more detail earlier in this guide. Once a professional tax preparer is an authorized e-file provider, they must follow certain rules set down by the IRS.
Paid tax preparers who reasonably expect to file 11 or more covered returns in a calendar year must electronically file federal income tax returns that they prepare and file for individuals, trusts, or estates.
Section 6011(e)(3) of the Internal Revenue Code requires any “specified” tax return preparer must electronically file certain federal income tax returns that they prepare and file for individuals, trusts, or estates after December 31, 2010.
There are a couple of caveats to this requirement. Tax preparers are not considered "specified" and do not have to e-file returns if any of the below apply:
- Provide tax assistance under the Volunteer Income Tax Assistance (VITA) program
- Prepare the return of their regular and continuous employer – or an officer/employee of the employer
- Prepare a return as a fiduciary for any person
The IRS has provided additional references and related guidance regarding who is considered a specified person, penalties for noncompliance, hardship waiver requests, and related topics:
- T.D. 9518 – Internal Revenue Bulletin
- Rev. Proc. 2011-25 – revenue procedure on hardship waiver requests and taxpayer choice statements
- Notice 2011-26 – notice on administrative exemptions to the electronic filing requirement
How long does it take to become a professional tax preparer?
There are two ways to answer this question. The short answer is… as long as it takes for the PTIN and EFIN applications to be processed and approved.
However, if you're looking to gain experience and get a handle on the basics of preparing taxes, the more accurate question is how long does it take to become a seasoned and experienced tax preparer. This is important because your career trajectory and how much you can make depends on your experience and expertise.
Our experts said that while there are some variables, in most cases, it takes about two tax seasons for a tax preparer to gain a firm grasp of tax preparation basics.
- In the first year, most tax preparers focus on getting comfortable with tax preparation technology, data entry, and working with clients from their own business or CPA/accounting firm.
- By the second year, most tax preparers have moved past the technology learning curve and feel comfortable taking on slightly more challenging returns that may require some independent thinking. Returns and client problems start to feel familiar, building tax preparer confidence levels.
- By the third tax season, you'll be a professional tax preparer with the expertise, understanding, and skills to prepare returns autonomously. This is often when tax preparers who had previously worked in larger firms consider working for themselves.
What does a tax preparer need to prepare tax returns?
At a minimum, you need tax preparation software that lets you sign returns as a paid preparer and e-file as an Electronic Return Originator (ERO). To improve your efficiency, you may wish to invest in technology with additional capabilities, such as tax preparation software that lets you manage documents in the cloud, accept electronic signatures, and manage refund transfers.
The IRS provides broad guidelines for what paid tax preparers need. They must:
- Use professional tax software that allows them to sign the return as a paid preparer and
- Electronically file the return as an ERO.
Because these guidelines are rather broad, there are dramatic differences in the software packages available for purchase.
Especially when first starting out, don't try to overcomplicate things. Look for tech that can help you:
Stay organized and keep your business on track. There are jokes about tax professionals and accountants and their attachment to organization for a reason. Tax preparation requires organization – even if you’ve decided that a virtual tax office is the right option for you. Whether it’s anywhere, at any time, any device accessibility, or document management solutions to an e-file system, tax software should improve your efficiency, increase your productivity, and most importantly, make sure you can do your job with confidence – every time.
Protect sensitive client and tax office data. Clients trust their tax preparers with a significant amount of sensitive and personal information. This is the type of information that identity thieves would love to get a hold of.
Professional tax preparer software like Taxwise® have built-in advanced security options to protect data, help you protect your practice, and comply with IRS security requirements.
Answer client questions without getting off-track. Every client has “just one quick question” – and each one tends to be a little unique, which means your answer will need to be tailored to their situation. You may not always know the answer. There will always be more to learn and gaps in knowledge.
Tax software solutions can help you get the answers you need without getting off track, often with an integrated research tool that provides links to the applicable IRC codes, knowledge bases, and appropriate tax forms. Look for an integrated research solution that lets you find the answer to your question without having to leave your tax preparation software.
What tax software do tax preparers use?
Wolters Kluwer's TaxWise® provides tax preparers with the industry’s leading professional tax preparation software. It helps you streamline and automate your tax prep business to maximize productivity, revenue, and efficiency so you can focus on clients and grow your tax business.
Whether you prepare individual 1040 or business tax returns, whether you’re a new tax preparer just starting out, an experienced tax preparer opening your own tax office, or a successful tax practice owner considering becoming a Service Bureau, Wolters Kluwer's tax preparer software solutions helps you prepare and file more U.S. tax returns in less time — anywhere, anytime.
What are the most common tax forms and returns tax preparers handle?
Common tax forms include federal and state forms. The most common federal tax forms include:
- Form 1040
- Form 1040-SR
- Form 1040EZ
- Form 1040A
- Schedule A
- Schedule B
- Schedule C
- Schedule D
- Schedule SE
- Form W-2
- Form W-4
- Form 1098
- Form 1099 series
If you specialize in areas such as business taxes, you may handle other forms.
In addition to federal tax forms, you should be familiar with common tax forms in states where you offer services.
What does the average tax preparer charge?
In 2023, the average cost to have a tax preparer file an individual tax return was $248, according to the National Association of Tax Professionals. Pricing varies by state and by type of tax preparation service.
How can you keep up with new tax law changes?
You can use many resources to keep up with tax law updates, including:
Meeting any continuing education requirements that apply to you also will help you keep up with tax law changes.
