How to become a tax preparer | Remote Quality Bookkeeping

How to Become a Tax Preparer

ByAaron Van Noy

So, you are interested in a career as a tax preparer, but how do you actually become a tax preparer? What qualifications do you need? What do tax preparers do?

What does a tax preparer do?

Tax preparers complete a file tax forms for their clients. Tax preparers will interview clients to gather information about deductible expenses, taxable income, and allowances. They use this information to ensure they apply appropriate deductions, credits, and adjustments, so their clients do not pay more than necessary. Tax preparers may also be able to offer advice to their clients about the best steps to take to reduce their tax liability for the coming year.

What do you need to become a tax preparer?

The process of becoming a tax preparer is easy and straightforward. There are a few basic requirements to become a tax preparer:

  1. Knowledge. Understanding the terminology and processes involved in tax preparation is key to success as a tax preparer. Getting into the world of tax preparation can feel like learning a whole new language, but learning that language and becoming intimately familiar with the forms and processes involved will lead to success down the road.
  2. Technology. Having access to proper technology will increase your efficiency and success in the new business. Access to professional tax software will provide you with all the tools necessary to set up your new business for success.
  3. Clients. Clients are the most important aspect of your new business. Clients are the backbone to success as a tax preparer and getting your start working on individual tax returns will provide the experience and knowledge to succeed on larger projects in the future.
  4. Preparer Tax Identification Number. A preparer tax identification number (PTIN) is absolutely necessary to be paid for preparing tax returns.

How do you get a PTIN?

First-time PTIN applicants can obtain a PTIN online. The process takes about 15 minutes, and there is a $35.95 nonrefundable fee. Before beginning the PTIN applications, applicants will need to have the following available:

  • Social Security Number
  • Personal information (name, mailing address, date of birth)
  • Business information (name, mailing address, telephone number)
  • Previous year’s individual tax return (name, address, filing status)
  • Explanations for felony convictions (if applicable)
  • Explanations for problems with your U.S. individual or business tax obligations (if applicable)
  • Credit/Debit/ATM card for the $35.95 PTIN non-refundable user fee
  • If applicable, any U.S.-based professional certification information (CPA, attorney, enrolled agent, enrolled retirement plan agent, enrolled actuary, certified acceptance agent, or state license) including certification number, the jurisdiction of issuance, and expiration date

Once you have gathered all the necessary information, you can apply by creating an account with the IRS Tax Professional PTIN System. After completing the application and paying the fee, your PTIN will be provided online. If you prefer to complete a paper application, the process will take 4-6 weeks.

Do you need a license to prepare tax returns?

Currently, seven states require a license to prepare tax returns within those states. These states are:

Certified public accountants (“CPAs”) and other professional credentials are exempt from these additional requirements in many states.

What are representation rights?

There are two types of representation rights, unlimited representation rights, and limited representation rights.

Enrolled agents, CPAs, and attorneys have unlimited representation rights before the IRS, meaning they can represent their clients on any matters before the IRS.

Enrolled agents are licensed by the IRS. Enrolled agents must pass a three-part Special Enrollment Examination, complete 72 hours of continuing education every 3 years, and be subject to suitability checks. Learn more about the Enrolled Agent Program.

CPAs are licensed by state boards of accountancy, the District of Columbia, and U.S. territories. Similarly, attorneys are licensed by the individual jurisdiction they work within.

Some tax preparers have limited representation rights, meaning they may only represent clients whose returns they prepared and signed and may only represent those clients before revenue agents, customer service representatives, and similar IRS employees. Preparers with limited representation rights cannot represent clients whose returns they did not prepare and cannot represent clients regarding appeals or collection issues even if they did prepare the return in question. Preparers with limited representation rights include Annual Filing Season Program participants.

Continuing Education

Many credentialed tax preparers need some form of continuing education. Enrolled agents must receive 72 hours of continuing education credits (“CECs”) every three years, Annual Filing Season Program participants need 18 hours of CECs every year, and CPAs continuing education requirements vary by state. However, tax preparers who only hold a PTIN and have no other credentials are not required to earn CECs, though participating in occasional continuing education courses may be helpful.

The IRS maintains a list of approved continuing education providers. Additionally, many of the approved providers hold annual conferences or offer online courses.

The ins and outs of becoming a tax preparer are fairly simple. Unless you live in one of the seven states which require an additional license, one only needs a PTIN to become a tax preparer. However, staying abreast of the various forms of technology and platforms used in tax preparation and changing trends and laws will help tax preparers remain at the top of their game.

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