The Facts About The Newly Instated Tax Preparation Certification

How Tax Preparers Can Make Money Year-Round

If you’re just beginning to look into a career as a tax professional, you may only be familiar with part of what tax preparers do – filing returns for individuals in tax season – leaving you with questions about how tax professionals make a living the rest of the year. Do tax preparers work year round? How do tax preparers earn money in the off-season?

The answers will vary with each individual tax preparer, but rest assured tax preparers can and do make a living year round. Most do perform some kind of work outside of tax season, and many diversify their income by offering other services in addition to tax preparation. Whether you’re just starting out or you’re a veteran tax professional, here are eight ways tax preparers can make money year round.

Prepare taxes for businesses

One of the simplest paths to year-round income as a tax professional is to offer tax preparation services to small businesses. Unlike individual tax filers, businesses need year round tax services. Many of your current clients may own small businesses themselves, so reach out to let them know about your new services.

If you want more training on preparing taxes for businesses, some IRS-approved CE providers like the Latino Tax Professionals Association (LTPA) offer courses on small business taxes.

Offer payroll management

If you already serve small businesses, you know that many need more than just tax help. Payroll is a task many small business owners are looking to outsource. Auxiliary services like this are a win-win for building your business: your small business clients are likely to hire you if they need payroll help and vice versa.

Perform bookkeeping services

Like payroll services, bookkeeping services are in high demand among small businesses. Despite what you may have heard, you don’t need an accounting degree or accounting experience to be an excellent bookkeeper. While the two services have similarities, bookkeeping is different from accounting and has a much shorter learning curve.

The LTPA also offers courses in bookkeeping and payroll for small businesses, making it easy to confidently offer these services to your business clients.

Become a tax service bureau

As a tax service bureau, you’ll help other tax professionals find the ideal tax software for their practice, and no – you don’t need to be a tech guru and develop your own tax software. Service bureaus resell trusted tax software under their own company logo, boosting the credibility of their brand and diversifying their income sources.

Who needs a PTIN?

A PTIN is required for anyone who prepares federal tax returns. It is also required for reporting agents who give tax advice and Enrolled Agents.

A PTIN is not required for:

  • Attorneys, certified public accountants, and Enrolled Retirement plan Agents do not usually need to obtain a PTIN unless they are compensated to prepare all or substantially all of a federal tax return or claim for refund.
  • VITA site preparers

Remember that the PTIN must be used as the identifying number on returns prepared. Failure to obtain and use a valid PTIN to file returns may result in section 6695 penalties and/or disciplinary action from the Office of Professional Responsibility.

How do I apply for the first time?

Prepare to begin your PTIN application by gathering the following information:

  • Personal information (name, mailing address)
  • Business information (name, mailing address)
  • Explanations for any felony convictions
  • Explanations for any problems with your U.S. individual or business tax obligations
  • Any applicable 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, jurisdiction of issuance, and expiration date

Employer and Small Business Tax Filing for Your Tax Prep Business

As a tax preparer, you’re already well-versed in the tax laws that affect small business owners. This article is meant to serve as a guide to ensure you are compliant in your own business. From choosing a legal structure to collecting tax info for your employees, these four steps will help you follow federal and state tax regulations as a professional and as an employer. 

Choose your business structure

The way you decide to structure your business is up to you, but it will determine which income tax return you need to file. Many tax preparers find that an LLC or a DBA (Doing Business As) works fine. 

Depending on the structure and where you are located, you may also be required to register with your state, and you will likely be required to have a business license. In fact, a business license is commonly required in most states, cities, and/or counties. 

For example, in Georgia, an LLC has an annual registration that must be filed with the State of Georgia. The LLC must also obtain a business license from Augusta-Richmond County. If the LLC was engaging in certain additional business activities, it might also have to obtain a license from Georgia to operate that supplementary business.

Choose your tax year

The calendar year begins January 1 and ends December 31. A fiscal year lasts 12 consecutive months and can end on the last day of any month (other than December). When it comes to reporting your own business income and expenses, you’ll need to decide what annual accounting period you will use.

Apply for an employer tax number (EIN)

If you employ a staff, you’ll need to obtain an Employer Identification Number from the IRS (Not to be confused with an EFIN). In addition, make sure that each team member completes a Form I-9, Employment Eligibility Verification, as well as a Form W-4, Employee’s Withholding Allowance Certificate. 

How can a tax preparer implement non-technical identity data management procedures?

Knowing what cybercriminals are looking for makes it easier to safeguard that valuable information and protect your business. Here are a handful of non-technical approaches that will enable your tax prep business to better shield identity data: 

Understand that not all data needs to be saved

Protect your customers by getting rid of some information. After all, it can’t be stolen if you don’t have it. Retain the records that are required by law and the contact info needed to maintain a relationship with a client and nothing more. Delete all client identity data after three years.

Train your staff to be skeptical

Phishing and social engineering scams are used by hackers to fool employees into sharing personal or financial information. Email is the primary tool that hackers use to deliver scams to unsuspecting recipients, so this is where you want to be on the lookout. Train your staff to identify suspicious emails. As a general rule, be wary of all messages from unknown senders and never share information, click links, or download attachments from anyone that you don’t know. This can be difficult for tax preparers who receive attachments from clients, but it is important to remain vigilant and on the lookout for anything suspicious. Use a secure document sharing tool like TaxSlayer Pro’s TaxesToGo app or client portal when sharing documents with clients to avoid being tempted to download attachments from emails.

Silo your data based on who needs it most

Not every member of your team needs access to identity data. Segment access based on a need-to-know basis. Fewer access points to sensitive data offer fewer opportunities for a hacker to weasel in and cause problems.

Five Ways Your Tax Preparer Knows You’re Lying

Divorce-Related Fraud

Claiming dependents unjustly isn’t the only way that divorcees can fudge their numbers.

Although child support is nondeductible for payers,1 some filers will still try to claim this expense by stating that it is spousal support or alimony in hopes that the IRS won’t notice the discrepancy and will allow the deduction. If they cannot produce a divorce decree that shows that the payment is alimony, then they shouldn’t be deducting it on any return.

Income Fraud

Filers who fail to report income can not only lower their tax bill but also collect unemployment benefits. Those who report abnormally low income for the year will trigger a red flag, especially if they are claiming dependents. In some cases, they are receiving child support or state and/or federal assistance that is nontaxable, but many of these filers also worked jobs for which they were paid in cash. This type of income is especially tempting to omit because of the additional payroll tax.

Personal Vs. Business Expenses

Breaking down business versus personal use for things such as vehicles and office equipment can be a very gray area for some customers. Customers who increase these amounts or percentages towards business use several times tend to arouse my suspicion unless they can cite specific additional instances of use.

More creative cheaters might create a dummy business entity to which false expenses are attributed.

Overseas Investors

Some clients think that investment or other income that they earn in other countries can be left off their tax return. This is not the case if they are U.S. citizens.

Any customer that gives me information about what they did during their time away, if they resided in another country for any material period, but have no income from there, that information should be closely questioned and thoroughly documented.

If the IRS Catches You

Of course, the rules clearly state that if a tax filer knowingly enters fraudulent information on a tax return that they prepare for a client and submit it, then both the client and the filer will be subject to disciplinary action or even criminal penalties (if the IRS discovers it). The client will also be subject to interest and penalties on the amount of tax that should have been paid.

Customers should be informed that adding substantial deductions to the return may increase the chance that they will be selected for an audit. If an audit happens, then the IRS will disallow any deduction or other incentives for which there is no proof, even if it was a legitimate expenditure that was actually paid.