A 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.
To run a real tax prep 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 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. (Note: The links are to products used in my office with newer preparers.)
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 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.
Here are some IRS-approved continuing education programs I approve:
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 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.
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.
Plugging every number starts to affect the carpal tunnel. It’s also mind numbing. My office uses a tax organization program called GruntWorx. 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.
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 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!
Clients: 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.
Credit cards are one of the most powerful wealthy building tools in existence today when used properly. They get a bad rap because irresponsible people rack up massive quantities of high interest debt and spend decades digging out if they ever get out. Still, credit cards can put a lot of ka-ching in your pocket if you understand the rules and never run a balance on the card.
If you are in the accumulation phase of your wealth building cycle, looking for a high income compared to the time invested or love gaming the system (your favorite accountant is guilty as charged), then you need to learn about tradelines.
To play this game you need a credit card at least two years old. The longer you’ve held the card and the higher the credit limit the better. This game requires you use said credit card and pay it off in full each month. The more credit cards you have the better.
Setting the Table
So what is this tradelines thing anyway? A tradeline is what a bank calls a line of credit. Your credit card is a tradeline.
A “seasoned” tradeline is at least two years old meaning it has a history. If you have no late payments on a seasoned card there is an active market for selling your tradeline.
Still confused? Me, too. It works like this. A credit card is called a tradeline. You can add authorized users (AU) to most credit cards at any time. People with poor credit pay to be an authorized user of your credit card so the bank reports the high unused credit limit on their credit report. This increases their credit score fairly quickly.
You know who they are, but they haven’t a clue who you are! A big concern surrounds risk of having your card cancelled. What if someone buys your tradeline and runs off spending all your money? No worries mate. It’s impossible. When you use a company acting as clearinghouse the buyer never knows who you are and a credit card never gets sent to the AU.
There is no need for you to spend effort looking for people willing to buy one of your tradelines either. There are a multitude of companies out there doing all the heavy lifting for you. They find the buyers, background check them (to prevent fraud), collect the money and send you the information. You add the AU to the card they purchased a tradeline from and sit back enjoying a cold one. Several months later you remove them as an AU and a check is mailed to you (direct deposit actually).
People buy tradelines to increase their credit score to get better loan rates and to reduce their insurance costs. This isn’t repair credit! If you went through a bad patch, buying tradelines can give your credit score a lift as long as you are not adding more negative marks to your credit report. A medical disaster is no longer a lifelong financial death sentence.
Car and homeowner’s insurance can be higher when your credit score is poor. It’s like kicking someone in the face when they are down. A medical emergency can destroy a life without hope of financial recovery. Buying tradelines can lower the interest on a mortgage or car loan, but also lower insurance premiums. Some people enjoy major benefits investing in tradelines.
Time for a Walk
The best way to understand selling tradelines is to walk through the process. By the end of the walkthrough you will know how your credit cards can add $1,000 or more per month to your pocket for an hour or so of your time.
Step 1: You need a clean credit history. No delinquencies in the last year or so. Your credit score doesn’t matter. If you’re like me you collected more than a few credit cards over the years and only use certain ones.
Open an account for free at Credit Karma. Credit Karma should list all your open and closed accounts. Each credit card should list the account open date and credit limit.
Step 2: Research companies brokering tradelines. You will need to vet each company for quality; most will not make the cut. More time will focus on finding the right tradeline company for you than the actual process of earning money with tradelines. The most important questions involve account verification. The banks generally don’t like tradelines being sold. Their biggest concern is fraudsters increasing their FICO score, getting a credit card or other loan and defaulting. Without adequate fraud control criminals can cause losses for the banks and that ends the party. Ask before selling your tradelines with any company. Better yet, ask for proof they are collecting all required documents and running a LexisNexis background on each client.
Step 3: Once you sign up with a tradeline company, you choose which credit cards you wish to sell tradelines on. Your tradeline company will tell you what their firm pays for each tradeline per card. You should try to get your credit limit raised on all your cards to increase the potential income from each tradeline sold.
Step 4: Your tradelines are listed by the tradeline company. In short order you will get an email explaining you sold a tradeline! It’s not money time yet. Follow the instructions for adding the AU to the card listed.
The credit card company will send YOU a card for the new AU. You don’t have to activate the card.
Step 5: The tradeline company will send you another email in two to three months informing you to remove the authorized user. Follow the instructions on how to remove an AU from your credit card.
Step 6: Keep an Excel spreadsheet listing all AUs, when you added them, which card added to, when the AU is removed and when you get paid. Recordkeeping is important! You need to know what you have and where.
Step 7: Collect a check.
Step 8: Repeat.
It is possible to have more than one AU per card. In fact, it is likely. This is good for you. The more AUs, the more income. There is a limit, of course. Each credit card has a limit on the number of AUs you can have at a time on their card. My opinion is no more than two AUs per card ever. If you already have numerous AUs on a card for your business you probably should keep that card separate and not use it for selling tradelines.
Is this legal? Another question people have is the legality of doing this. My research indicates it is legal, including remarks from a spokesman from the FTC. The illegal issues lay with tradeline companies not doing adequate background checks. This is why it is important to vet any tradeline company before signing up with them. My understanding is this cannot be listed as credit repair and money can’t be collected up front from the client. You get paid after the fact so reading FTC reports indicate there are no legal issues with selling tradelines. If you vet a tradeline company and later the company takes a shortcut there is liability risk to the tradeline company. Having your due diligence in order protects you.
A Few Rules
Tradeline companies will have some rules to follow. I want you to follow those rules and add my more restrictive rules to their list if necessary. The more restrictive rule applies to protect you from account closure.
When your tradeline company tells you to remove an AU from a card, DON’T DO IT, unless at least two months have passed, preferably three. If you slap additional AUs on and off a card too fast the bank will cancel your card. Selling tradelines may not be illegal, but like counting cards in a casino, the bank will not like it if they know what you are doing, cancel your card and tell you to not come back.
All AUs stay on my cards for 90 days minimum!
You will be told to spend a token amount on the card. BS!!! Every card with an AU should have meaningful charges. You do the spending. The AU is not around to spend on your card. But meaningful spending on a card with AUs is a must. Don’t game the system with the card issuer getting a few pennies.
I’m lucky. With a business I can find plenty of things to put on the credit card. A typical paper order (in our paperless office) runs 250 reams. You may wish to consider previously published alternatives to spending, too.
If you are frugal (like me) without a business (unlike me) with few expenses to charge, there is a low limit to selling tradelines. Still, a couple hundred a month for less than an hour of time is a nice addition to the mad money account. One account handled properly can be worth $300 or so every couple months.
One Last Caution: There are plenty of companies brokering tradelines. I spent serious time reviewing multiple companies to verify I am with a “seasoned” firm and still discovered it wasn’t as seasoned as I would have prefered. There are other good tradeline companies out there. The real work is in finding them.
Vet several tradeline companies before committing. I use a tradeline company and am aware of two more who run a tight ship. The additional two companies I know of are doing it right so they don’t have much supply. Still, slow and steady wins the race. The company I am using was originally listed in this post and I edited them out until I can verify further. I want happy readers. The last thing I want is a mob of angry people who had their credit card cancelled. A background check on all clients is an absolute MUST!
This is a process. Consider adding to your credit card portfolio to increase future income. Go to the TWA Recommends page and scroll down to the recommended credit cards. Pick a card that matches your needs. Travel miles or cash rewards, et cetera. A good plan might be to add one card every three to six months or so for you and a significant other. Max out the bonus rewards and keep the card until it is ready for use selling tradelines. Don’t cancel the card. Keep it for future personal use too. Of course you will have a favorite card, but I use different cards for different situations as I suspect you will.
There is more to this, but I wanted to keep this under 2,000 words. Do your research; don’t just take my word for it. Crazy accountants from the backwoods of nowhere lead a guarded life. Before you commit to anything, do your due diligence. If you are uncomfortable with this idea; take a pass. My job is to share knowledge. There is no harm in taking a pass.
Note: My original post before the edit you just read contained more specific information and a referral to a tradeline company. I removed those references until I can verify more information this post brought up. Publishing a blog is an awesome form of crowdsourcing knowledge. In no way am I indicating the firm I mentioned did anything wrong or was taking shortcuts! What I am saying is when I do something myself I am willing to suffer the consequences. When I publish it is imperative I check and double check to protect you, kind readers.
I learned of this industry from another individual who had concerns before I edited. You can read his comments here. (And should!) I am working with same individual to verify my recommendation is valid. If it is I will add the contact information. I will only add the contact info once I am sure everything is in order. Check back for updates.
[October 31, 2017 Note: Read the above notes and warnings. I do NOT recommend any tradeline company. I do use a tradeline company to experiment and understand the industry. They have made significant improvements, but I have no way of verifying their quality. I am sharing their contact info below with the understanding I do not endorse any tradeline company, including theirs. It is also further noted this blog receives compensation if you sign up with the listed company. A further disclosure: the company listed emailed me yesterday to consult with them on their tax situation and prepare their tax returns, business and personal. I have not responded, but will probably provide tax services to them in the future.
2534 State Street, Suite #433
San Diego, CA 92101
Mention this blog to receive a bonus on your first tradeline sale.]
Tax season is officially over and not a moment too soon. As much as I love the work, when months go by without a day off it begins to wear on me. The worst part is the sitting. Too many hours planted in a chair coupled with sleep deprivation and health is not getting the attention it needs.
Loving something as much as I love tax work is also a challenge for people around me. Mrs. Accountant is an angel, allowing me the opportunity every year to disappear for months to help complete strangers and semi-strangers with their tax, accounting and financial problems. My daughters have learned from an early age dad is a very intense man when it comes to his work.
Work has never been a four letter word for me. (Considering my profession you would think I could count to four better.) Growing up on a farm meant everything was work, but not work. Running to the creek to fish was something you did. Planting in spring was fun, not really work. Harvesting was an addiction; sleep was hard to achieve until the crops were off the field. I know of no greater pleasure than watching a barn filled with bales of hay, placed there by my own hands. There is no greater thrill than to see the milk cooler fill each day to the rim. A full bulk tank meant money, and therefore, life. It was a good life and I had no idea what the real world was like outside my vision horizon.