Starting a Successful Seasonal Tax Preparation Business

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Readers of this blog are always looking for a side hustle. Seasonal tax preparation is a perfect fit for many early retirees. A small tax preparation business allows for an earlier retirement as the side income can easily be enough to live on for even a modestly frugal person. Another large reader demographic involves the accounting industry. There are plenty of blogs talking about tax issues, but few discuss the realities of starting, promoting and maintaining a tax practice.

I touch on the subject of practice building periodically, but my email folder is filled with requests for a more detailed post. A recent email from someone called Speed (I love it!) asked a series of questions that encompasses the bulk of practice management requests.  Much of what I discuss can be applied to most other business ideas with only slight modifications.

Rather than give a play-by-play on starting and managing a tax practice, I will take each of Speed’s questions and answer them. The reason for avoiding the play-by-play is because there are many ways of starting a successful business. I don’t want to give the illusion you are locked into one pattern to win. Life is rarely that neat.

How exactly did you start preparing tax returns for others? Recommendations for someone wanting to do the same?

Preparing taxes as an occupation came by accident. You see, back when I graduated from high school the economy was really bad in NE Wisconsin. Not only were businesses not hiring, they wouldn’t even waste the time or paper allowing you to fill out an application. It was a good thing since I never intended on working for the man anyway.

What I did have was a work ethic instilled growing up on a farm. The family farm went bankrupt a few months after I graduated high school, however. My dad suffered but refused to quit. He started a business repairing bottom unloaders in Harvester silos, the blue silos you see around the country. Without any other employment options I took a job working for dear ‘ol dad. As fate would have it, dad hated bookkeeping and taxes so he left the task to me. Well, sitting in a nice warm office pushing numbers sure beat the hell out of busting ass in a dark silo room.

Things were tight back then with the economy and all. I worked long hard hours and came home from a long day of ball-busting work to balance the books. I was paid as you would expect an old farmer to pay his son. When employees asked me to prepare their taxes I agreed to do so for $20. As small as that sounds, it was a fortune compared to what my dad paid me per hour. Then vendors asked me to prepare their taxes. (Vendors paid more than $20.)  Spring was a joyous time of year with all the extra cash flowing in. My first paid tax return was in 1982 when I was a senior in high school.

I hated the silo business so I quit a few years later. Investments and zero spending turned my nest egg into a tidy sum. It was 1986 by now and part-time tax work coupled with investments was enough to live a very Spartan lifestyle and I did. Then I met Mrs. Accountant. (Don’t laugh!)

A year later we were married and I was working as a custodian at her church for $7.85 an hour. (A respectable husband works, you know.) A year of that and I quit and went taxes full-time out of my home. I figured it was still respectable to work 2 ½ months a year and do what I want 9 ½ . Five years later I had a store front and more employees than I ever imagined.

My recommended study course for the enrolled agent exam.

For normal people starting today I would recommend working for an experienced tax professional for a few years and studying for the enrolled agent (EA) exam. You could also open shop out of a spare bedroom, accepting only basic returns until your skills improved which is what I did. After two full-time tax seasons I passed the EA exam and moved to the next level. I was beginning to learn how much I did not know.

Either a few years working for an established firm or starting with basic returns on your own will increase your tax knowledge and help you understand how tax returns flow. Tax preparation is a great side hustle or career. It is what drew me to the professional. That and my love of numbers.

Wondering if you can offer advice on how to start prepping tax returns for others (seasonally)? I have a similar philosophy as you regarding the role of finance and the tax code and would like to both learn more and maybe monetize this interest. Hypothetically speaking, if someone approached your company wanting to work for you, what strategies and know-how would they need to have expert knowledge of? 

Starting a seasonal tax practice out of your home is easy. The initial investment is much smaller than in the past with the cost of computers much lower today. You will need a computer, printer and professional grade tax software. I recommend Drake Software for tax professionals. (Dear Drake Software: Please institute an affiliate program so I can get paid for all the business I am sending you. Thank you.) I recommend Drake because it is very user friendly and their support is awesome.

If I were starting today from scratch I would focus on a niche. I would focus my studies in one area and kill it. Rental real estate is a perfect example with the relatively new repair regs and cost segregation rules. You can impress landlords with stuff they probably didn’t hear before so you look like a god to real estate investors.

Someone approaching me for a job should have the following attributes: outgoing and friendly attitude (clients trust people they like); proficiency using basic software like Word and Excel; a working knowledge of tax software; a working knowledge of the tax code and how to apply it on a tax return. Tax knowledge and application are two very different animals. I know people with massive tax knowledge who don’t know where stuff goes on the return. A tax office deals in application. Learn it. You don’t need to know everything about the code. Get good at one area and expand from there. If you are a master at individual returns, you are hired. If you are a genius at business returns, you are also hired. Get good in at least one tax area and be willing to take direction.

Where/how do you train them from there? Specific resources you require or recommend? Can you offer any more details in your own education of working towards being an accountant (but not going back to school for the degree)?

I train differently than most. Once you have the basics down I make you review the work of other preparers and work with said preparers to improve their performance. Reviewing the tax work of others gives you a different perspective and grows your skill sets. Then I review your review until you can walk on your own.




Whether you intend to get your EA or not, I expect you to study for the exam until you have it down. The IRS EA program is exceptional. If you can master the EA you will be well on your way to being a top-notch tax professional.

Every part of the country has continuing education courses for tax professionals. Search engines will give you plenty of options. Most of the classes are one day with some going two or three days. These are power-packed programs. You will not absorb it all. Take the workbook that comes with the course and keep it next to your desk. CPAs need 40 credit hours of CE per year (none has to be in the tax field) and EAs are required to take 72 credit hours every three years with no year having less than 16 credit hours (an average of 24 hours of CE per year). All EA continuing education classes must be in federal taxation. Don’t take online courses! Sit in the classroom! It is important. The online programs are fast and easy credits but all too often provide no real increase in tax knowledge. You want to get good, not slide by on the minimum.

For the record, I have no college degree. Does that blow your mind? Enrolled agents do not need any other education degrees to have a constructive career, full- or part-time. Study for the EA. Study for the EA. Did I say that yet? You must study and pass the EA exam! Then you keep learning until the EA exam is old hat. Study. Then study some more.

Buy a Quickfinder (will any of these companies start an affiliate program so I can turn some coin referring them?) every year and read it. Use it as a reference whenever needed. It is a good start. When you use the restroom you have reading material. (Stop laughing! I’m serious.) When you want to watch TV, either read EA study materials or your Quickfinder.

If you do all these things you will not need me to tell you where to study next. You will know. You will have new questions all centered on complex tax issues where even the Tax Courts around the country don’t agree with each other. Then you should ask me for a job. Please.



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Keith Schroeder

12 Comments

  1. John McCarthy on February 22, 2017 at 8:05 am

    Keith, I like the idea of having new employees review the work of others from the start. That is a great way for new employees to really internalize tax concepts.

    • Keith Schroeder on February 22, 2017 at 8:14 am

      Dawn is a new preparer in my office and she is a natural at taxes. She was surprised when I told her she was reviewing returns prepared by a temp. She learned quickly what it is like on the other side of the table. It is also increasing her tax skills quickly.

  2. Andy on March 15, 2017 at 6:13 pm

    I have a good full time job as a controller (degree in accounting) and am considering starting my own small tax prep business. Really don’t mind if I just do family and friends with a few referrals to start. I know more about tax prep than the average person, but certainly not to the level to run a business. I know I need to take some live or e-classes to learn proper preparation. Is it possible for me to “start” the business by getting it registered and setup, and then can I deduct expenses like the training/classes I mentioned, and then office equipment like a computer, printer, file cabinet, etc? I would also look at earning the EA credential, expensing that too of course if possible. 🙂 Just curious if you have any words regarding this idea? Thank you!

    • Keith Schroeder on March 15, 2017 at 6:31 pm

      $5,000 of start-up costs are deductible up front; the remainder is amortized over 180 months. Once you open for business necessary and ordinary expenses are deductible. Training and equipment easily meet the IRS guideline.

  3. TraceyinOregon on March 27, 2017 at 8:34 pm

    What are your thoughts on buying into a national tax prep franchise vs going solo or starting on your own?

    • Keith Schroeder on March 28, 2017 at 7:35 am

      The national chains beg me to sell every year. Now why would I want to pay a 30% franchise fee on all the work I do? I prefer going solo. If you need a lot of support you can try a franchise, but they own you if you do. I’m too independent minded to do that.

  4. Chuck on April 20, 2017 at 12:31 pm

    Good morning Keith,

    I just discovered your site this week and I can’t tell you how thankful I am for the info you are sharing. I am very excited to continue digging.

    A quick side tangent before my question — Someone recommended your posts to me and I started with Frugality the Right Way. Your section on “more frugal ways to live” started with advice on cable/internet services.
    I worked in Finance/Corporate Strategy at one of the large telecoms for 5 years. Although I despised talking about my work because it inevitably led to a 5-10 minute complaint/rant or poor experience, I always made the effort to help my family and friends understand how the bundle game ACTUALLY works — regardless of what the Sales Rep told them about “it’s cheaper to have Internet/TV/Phone rather than just Internet.”
    Your sentence about how telecom companies “play mind games and rape your wallet in the process” is a much more eloquent summation that I should have used rather than my detailed explanation. Spot on.

    Anyway, here is some background before my question. I enjoy helping family/friends with their taxes using my very limited knowledge set (which is still useful because it’s slightly greater than theirs). This year I spent the tax season volunteering as a VITA tax assistant for low income families preparing basic returns. As part of my ‘retire early’ (or semi retire) plan, I would like to start a small Tax Preparation business. My plan for the next 4-6 years is to continue my 9-5 finance job to save for retirement. My employer will reimburse me (almost entirely) for 2 University courses each year so I am considering pursuing a Masters in Taxation. I have a pretty convenient situation because the University is across the street from my employer and the MST degree will only cost me $3,500 in total. It would take 5 years at the pace of 2 classes per year and I plan to be working my corporate job anyway during those 5 years.

    My question is: with a goal of running a Tax Preparation business in the future, how much value do you think a Masters in Taxation would hold?

    I believe would have plenty of time to study and pass the EA exam while simultaneously pursuing the MST during the next 5 years. But if the MST will not be nearly as valuable in terms of growing the required knowledge set and application abilities …….. or in terms of the credential helping attract clients, then I wonder if time would be better spent in other ways. The other ways would likely be focusing on the EA immediately and working part-time for an experienced tax professional or starting with basic returns on my own (as you suggested).

    Thanks again for what you are doing with this website and I truly appreciate any advice you may be able to share with me about this.

    Chuck

    • Keith Schroeder on April 20, 2017 at 1:06 pm

      I’m glad you enjoyed my colorful language, Chuck. As to your question/s: Most clients could care less about the letters after your name. They want to know if you can help them or not. If you are competent AND confident you will do fine.

      That said, I think a Masters in Taxation has significant value. So does the EA. With the EA you can represent clients (anyone for that matter) before the IRS. Honing your tax skills to a fine edge is always a good idea. VITA is a great way to get a feel for tax application versus tax theory, which you get studying taxes. Since your employer covers the cost it is a no-brainer.

      One last thing. You may notice I tell people I have an EA, but I don’t think I added the letters after my name on this blog and it’s an accounting/tax blog! Except for other tax professionals, most people don’t even know what the letters mean. When the issue arises I inform the client of my license and what it allows me to do for them. Up to that point they were only interested in if I could help them. Don’t get hung up on designations; get hung up on improving your skills every day. After 30 or so years I am still learning and growing. It is why I am getting reasonably good at it. And to this day, no one has commented or sent me an email worried I was writing a tax blog without a professional designation. Got lots of oooo’s and ahhhh’s, however. Do great work and clients will not care about your background.

      Hope this helps, Chuck.

      • Chuck on April 20, 2017 at 3:29 pm

        That is super helpful, thank you Keith! MST classes start in a couple of weeks and I will be much more confident going into the program knowing that what I learn there will support my ability to be successful with Tax Prep down the road. Your advice about the trivial value of designations is well taken. I will keep that in mind.

        When a friend of mine told me about your site, he said “dude, there is a guy blogging about all the weird shit you are into: taxes, early retirement, frugality.”
        I thought it was too good to be true! I’m looking forward to consuming all of the useful content you put out. So a sincere thank you again for what you’re doing plus your personal response to my question.

        Best wishes,
        Chuck

  5. Nervous Accountant on October 16, 2017 at 11:21 am

    Sorry I’m late to this post… You recommended working with a tax professional in this article for experience. As someone who has completed that step and has earned their EA, do you recommend they start from scratch and go out on their own or purchase into the firm they are currently working for.

    In my situation, the owner is looking to retire. Obviously I do have a small number of people who come to the firm for me but a majority of the business is here because the owner attracted them over the past 40+ years. I’m having a hard time convincing myself to pay hundreds of thousands of dollars for the chance to try and convince these people to hang around. It’s not like you are buying inventory or a building, almost the entire purchase price is goodwill the owner built over the years with his clients. I look at the firms current gross revenue and think, “that’s nice”, but that number isn’t guaranteed like the loan or purchase price is going to be. Regardless if you are buying into or starting your own firm, it’s going to be a lot of work and either way; you are going to need to create your own business relationships and bring in new clients to survive.

    • Keith Schroeder on October 16, 2017 at 11:40 am

      Nervous, building a practice from scratch is tremendously cheaper. However, purchasing an ongoing firm has advantages too. A ready-made client list is valuable as long as the current owner sticks around to facilitate the transfer process. In other words, most of the clients will stay because they will get to know you better before the old boss rides into the sunset.

      You are right about the work level. A strong work ethic goes a long way in any field. Whether you start from scratch (some clients may follow you) or buy into your employer, take some of the ideas I bat around this blog. I write about stuff most tax pros are skipping. And don’t take my word for it!!! Take my ideas and research them. Dissect my ideas to better understand them. Even challenge my ideas! When you bring added value you will attract the best clients: the ones with money and willing to pay for quality tax advice. Done correctly, you will have fewer clients that pay you more. That also spells greater profitability.

      Good luck in your venture, Nervous, whichever way you choose.

  6. Maria on December 15, 2017 at 2:06 pm

    I’m very interested in this subject and really appreciate all the great posts you do in regards to taxes and having a tax business.
    I worked as a receptionist for many tax seasons and I always saw it as an option to become a preparer. With young children, a job and other ideas for myself (namely an expensive degree with pie in the sky ideas on careers) I never went through with it. I have considered it more recently but would need to start from scratch as I have no connection to that world anymore.
    I have considered doing it just to understand better how to save money on our own taxes as we have begun paying someone to do them in recent years.
    As I would like to start a business it would also behoove me to learn more just to strategize. With the new tax laws I do wonder how many people will do it themselves since itemizing won’t be emphasized as much if I understand things correctly. Maybe that just means tax pros would focus on small business taxes more.

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