How to start a tax business with confidence

Starting a tax business can be a rewarding venture, blending detailed tax knowledge with sharp business savvy. The industry pulls in billions of dollars annually, fueled by steady demand from individuals, small businesses, and freelancers alike.

This guide will take you through the practical steps of validating your business concept, obtaining necessary licenses, and securing funding to help you launch a successful tax business in the U.S.

Step 1: Validate your business concept

First, decide who you want to serve. Will you focus on individual tax returns, small businesses, or a niche like real estate investors? Use U.S. Census Bureau data to understand the demographics and business landscape in your target area. This helps you tailor your services.

Once you know your audience, research the competition. A simple search on Google Maps will show you the local tax preparers and CPA firms. Review their websites to see what services they offer and how they position themselves. This gives you a baseline for your own offerings.

Forecast your startup costs

Your initial investment can vary, so it helps to have a clear budget. Many new owners are surprised by the cost of professional tax software, which can run from $1,000 to $5,000 annually. Look into options like Drake Tax or Intuit ProSeries early on.

Other initial costs include your Preparer Tax Identification Number (PTIN) from the IRS for about $36 and Errors and Omissions (E&O) insurance, which typically costs $500 to $1,500 per year. Your Electronic Filing Identification Number (EFIN) is free but can take 45 days to process.

Here are your first few action items:

• Define your ideal client profile (e.g., freelancers, small businesses).
• Identify three direct competitors in your area and note their services.
• Get a quote for Errors and Omissions (E&O) insurance.
• Compare pricing for two professional tax software suites.

Step 2: Establish your legal structure and obtain licenses

Choose your business structure

You should first decide on a business structure. An LLC is a popular choice because it protects your personal assets from business debts. You can form one through your state's Secretary of State website, with fees typically between $50 and $500.

An S Corp can offer tax advantages, but it requires more administrative work like payroll and formal meetings. Many owners start as an LLC and elect S Corp tax status later, once the business generates consistent profit. This approach gives you flexibility as you grow.

Secure your federal, state, and local licenses

The IRS is the primary federal regulator. You already know you need a PTIN and an EFIN. Beyond that, licensing depends on your location. A frequent mistake is to assume the PTIN is enough, but many states have their own rules.

For example, California requires registration with the California Tax Education Council (CTEC), which involves a 60-hour course. New York and Oregon also have specific preparer requirements. Check your state's Department of Revenue website for its rules. You will also need a general business license from your city or county.

Here are your immediate steps to take:

• Select and register your business structure with your state.
• Research your state’s specific tax preparer licensing requirements.
• Apply for a general business license from your local city or county office.

Step 3: Secure your insurance and manage risk

Your most important policy is Errors and Omissions (E&O) insurance. This protects you if a client claims you made a mistake on their return. A typical policy offers $1 million in coverage and can cost between $500 and $1,500 annually.

Other policies to consider

Beyond E&O, you may need other coverage. General liability insurance, around $400 to $900 per year, covers client injuries at your office. If you hire employees, you will also need workers' compensation, as required by your state.

Many new preparers overlook cyber liability insurance, but a data breach can be devastating. You might want to look into providers like Hiscox, The Hartford, or Insureon. They understand the specific risks tax professionals face and can bundle policies for you.

Here are your immediate steps to take:

• Get quotes for an Errors and Omissions (E&O) policy with at least $1 million in coverage.
• Assess if you need general liability, workers' compensation, or cyber liability insurance.
• Contact an insurance provider that specializes in the tax preparation industry.

Step 4: Set up your location and equipment

Choose your office space

You can start with a home office to keep costs low. Just check your local zoning laws, as some areas restrict client traffic in residential zones. If you prefer a commercial space, look for a small office of about 150-300 square feet. This gives you room for a desk and a private meeting area.

When you look at leases, a frequent mistake is signing a long-term commitment too early. You might want to negotiate for a shorter term, like one or two years. Also, ask if the landlord offers a tenant improvement allowance to help cover costs for paint or new flooring.

Get your equipment ready

Your technology is a key part of your setup. Plan to spend between $800 and $1,500 on a reliable computer. You will also need a good multi-function printer and scanner, which can cost from $200 to $500. Do not forget a secure, lockable filing cabinet for client documents.

For furniture, you can find a desk and comfortable chairs for around $500 to $2,000, depending on if you buy new or used. You can find everything you need at standard retailers like Staples or Office Depot, so you do not need to worry about special suppliers.

Here are your immediate steps to take:

• Check your local zoning laws for home office restrictions.
• Price out a computer and a multi-function printer and scanner.
• If leasing, ask potential landlords about a 1-2 year lease term.

Step 5: Set up your payment processing

Most tax preparers require payment when the return is complete. You should be ready to accept credit cards, debit cards, and digital wallets. For larger advisory projects, you might want to ask for a deposit upfront to secure the engagement.

As you look at payment solutions, prioritize clear pricing and quick access to your money. Many new preparers get tripped up by services with hidden monthly fees or clunky hardware, which can quickly eat into your profits, especially early on.

For tax businesses that need to accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit and digital wallets directly through your smartphone - just tap and done.

At just 1.99% per transaction with no hidden costs or extra hardware needed, it's particularly useful for mobile preparers meeting clients at their homes. For comparison, other providers often have rates between 2.5% and 3.5% plus monthly charges.

• Get Started: Download JIM app for iOS
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone
• Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers

Here are your immediate steps to take:

• Decide on your payment terms, such as payment on completion.
• Compare two payment solutions, noting their transaction fees and hardware costs.
• Download the JIM app to see how it works on your phone.

Step 6: Fund your business and manage finances

Secure your startup funding

You will likely need between $10,000 and $25,000 in working capital to cover your first six months. This accounts for software, insurance, and marketing before revenue becomes consistent. Many new owners forget to budget for the slow summer months, so plan accordingly.

The SBA 7(a) loan is a popular option, with amounts up to $350,000. You typically need a credit score of 680+ and a strong business plan. For smaller needs, an SBA Microloan offers up to $50,000 with more flexible requirements.

You might also consider a business line of credit from your bank. This gives you access to funds as you need them, which is helpful for managing unpredictable cash flow. It is a good idea to secure this before you absolutely need it.

Manage your business finances

From day one, open a dedicated business bank account. Mixing personal and business funds creates accounting headaches and can put your personal assets at risk, even with an LLC. This is a simple step that many new preparers overlook.

Also, set up accounting software like QuickBooks Online or Xero immediately. Diligent bookkeeping not only prepares you for your own tax obligations but also provides the financial data you need to apply for future loans or lines of credit.

Here are your immediate steps to take:

• Calculate your estimated working capital needs for the first six months.
• Check your personal credit score to see if you meet SBA loan requirements.
• Open a separate business bank account.
• Research two accounting software options like QuickBooks Online and Xero.

Step 7: Hire your team and set up operations

Build your team

You likely will not need a full-time team at first. Consider hiring a seasonal Tax Preparer for the busy season, with pay between $20 and $30 per hour. An Administrative Assistant at $15-$20 per hour can manage appointments and client files, which frees you up.

Any preparer you hire must have a valid Preparer Tax Identification Number (PTIN). You should always confirm their status in the official IRS directory. Some new owners face penalties because they forget this simple check. An Enrolled Agent (EA) credential is a strong bonus.

Set up your workflow

With your team in place, you need a system to manage work. Practice management software is built for this. Look at options like TaxDome or Canopy. They provide client portals, secure document exchange, and project tracking in one place.

This software helps you monitor productivity. A good benchmark is for each full-time preparer to generate between $100,000 and $150,000 in annual revenue. This ratio helps you know when it is time to expand your team.

Here are your immediate steps to take:

• Draft a job description for a seasonal Tax Preparer.
• Bookmark the IRS PTIN directory for future hiring checks.
• Schedule a demo with a practice management software provider.

Step 8: Market your business and acquire clients

Your first marketing move is to claim your Google Business Profile. It is free and puts you on the map for local searches like “tax preparer near me.” Fill out every section with your services, hours, and photos to build credibility with potential clients.

Next, you will want a simple, professional website. It does not need to be fancy. Just clearly state who you are, what you do, and how clients can contact you. This acts as your digital storefront and a key trust signal for people who find you online.

Build your network for referrals

Referrals are a powerful source of clients. You might want to join a local business group like your Chamber of Commerce or a BNI chapter. Build relationships with bookkeepers and financial advisors who can send business your way. These partnerships can become a steady client stream.

Many new owners overlook their existing network. Reach out to former colleagues, friends, and family to announce your new venture. Your first few clients will likely come from people who already know and trust you. A simple email can get the ball rolling.

Once you have some traction, consider a small marketing budget of $200-$500 a month for targeted Google or Facebook ads. Track your Customer Acquisition Cost (CAC). If you spend $500 and get five clients, your CAC is $100. This metric tells you if your ad spend is effective.

Here are your immediate steps to take:

• Set up and fully complete your Google Business Profile.
• Join one local business networking group or your Chamber of Commerce.
• Draft an email to send to your personal network announcing your new business.

Step 9: Set your pricing strategy

Choose your pricing model

Most tax preparers use a per-form pricing model. For example, you might charge a base fee of $150 for a simple Form 1040 and add fees for other forms, like $200 for a Schedule C. This approach is straightforward for clients to understand.

For more complex work like tax planning or audit support, you might want to charge an hourly rate, typically between $150 and $350. A mistake many new preparers make is not charging for initial consultations. Consider offering a free 15-minute call, then bill for longer meetings.

Set your rates

To set your prices, do some local research. You can call a few competitors and ask for a quote on a hypothetical return to see what the market rate is. This gives you a solid baseline instead of just guessing what to charge.

With your pricing in mind, think about your revenue goals. A solo preparer should aim to generate between $100,000 and $150,000 in revenue per tax season. This target helps you work backward to set fees that make your business profitable from the start.

Here are your immediate steps to take:

• Create a price sheet for your top five services, like a basic 1040 or a return with a Schedule C.
• Call three local competitors to get a price quote for a sample tax return.
• Decide on your policy for charging for initial consultations.

Step 10: Implement quality control and scale your business

To maintain accuracy as you grow, you should implement a peer-review system where a second preparer checks every return before filing. A good quality metric is your client revision rate. You should aim to keep it below 5%, as this shows your initial work is solid.

Know when to grow

A common misstep is to hire too quickly without a clear need. Use revenue as your guide. Once a preparer generates over $150,000 in annual revenue, it is time to hire another. This approach prevents burnout and maintains service quality during busy periods.

You can also scale by adding services. With your tax clients' trust, you are in a great position to offer bookkeeping or payroll. This creates year-round revenue streams beyond the busy tax season and deepens your client relationships.

As you add clients and staff, spreadsheets will not be enough. Practice management software like TaxDome or Canopy becomes vital. It helps you track deadlines and client communication, which ensures nothing falls through the cracks during periods of growth.

Here are your immediate steps to take:

• Establish a peer-review process for all tax returns.
• Start tracking your client revision request rate each month.
• Evaluate adding bookkeeping as a new service offering.

A tax business is about more than just numbers. It is about the trust you build with clients who rely on your accuracy. Remember that your integrity is your most valuable asset. You have the roadmap, so go ahead and take that first step with confidence.

As you prepare to welcome clients, payment collection should be simple. JIM turns your smartphone into a card reader, letting you accept payments without extra hardware for a flat 1.99% fee. It makes transactions easy so you can focus on your clients. Download JIM to get started.