In this article, we will give a few tips on making money as a professional tax preparer.
In the Pronto Tax Class Textbook and Instructional Videos, we offer even more tips on making money doing people’s income tax returns, but below you’ll find some great free tips to keep in mind as you strive to turn your tax learning into tax earning.
1. Remember that Time Is Money
First, you must always remember that time is money in the tax world. Almost everything you do in the tax preparation industry, you will find, is time-related. For example, the overarching and dreaded “April 15” deadline that is hanging over the nation during these crucial months shows how time-sensitive taxes are.
As a tax preparer, then, you must value both your time and other people’s time during tax season, or else you will never make any real money doing taxes for pay. That is just the facts of life when it comes to tax season. You can’t expect to be slower than molasses preparing tax returns and expect to get paid well for it.
Very few first year tax preparers are worth more than $10 per hour in today’s marketplace, and very few tax preparers receive more than that. The first year of tax preparation is an apprenticeship process and in order to be successful, you will need extensive help from more senior tax professionals. The real “compensation” for a first year tax preparer, then, is in the training that you receive.
(Which, by the way, is why it’s so important, when you’re evaluating tax preparation job opportunities, to ask about the training you will receive.)
But there is a certain group of even first year tax preparers who, instead of making $10 per hour, make $15-$20 per hour.
Who are they, these higher-earning tax preparers, and what makes them different from the rest of the crowd?
This is the group that is efficient and fast at preparing tax returns. We see this in our company all the time: the more tax returns you do, the more money you make; the tax preparers who understand that equation are, invariably, the tax preparers that make the most money. And this focus on production is not unique to Pronto. Many tax companies pay on a commission basis, relating your pay directly to your performance. And even companies that pay an hourly rate, best believe that your manager will be evaluating your worth as a tax preparer relative to the number of tax returns you can do per hour, day, or whatever other measurement your manager uses.
You must realize that for those of us in the tax preparation business, we only have that January 15-April 15 period to make good money. For this reason, new tax preparers who are ready to “make hay while the sun shines” will be the ones who are getting the $15-$20 per hour, the recognition from management, and the rest of that good stuff. Tax preparers who can only do 2-3 tax returns per day, meanwhile, are not likely to find success in the tax preparation business.
Now obviously you don’t want to just slam out a bunch of inaccurate tax returns just to be doing more tax returns. That is not our point here. Going fast and screwing things up is not a virtue. Rather, we are simply pointing out that if you are planning to make money preparing tax returns, you need to be able to prepare tax returns efficiently. Being efficient starts with valuing your own and other people’s time.
2. Peak Filing Tax Season Is When You Make Good Money
Our #2 piece of advice is also time-related, and this advice is to understand that working a lot of hours, as many hours as humanly possible in fact, during “peak filing season” is a great way to ensure that you will make your maximum tax season paycheck.
Especially with the government-induced reduction in “Refund Anticipation Loans,” or RALs, the tax preparation business has changed. RALs, in case you didn’t know, were the means by which tax preparation companies were allowed to body slam customers for $300-$500 a pop and customers would eat it right up because the tax money would be “advanced” in 24-48 hours, and some people will pay whatever it costs to get their tax money now, not later.
In most cases, the tax preparation fee for a RAL customer would just be taken directly out of the tax refund, enabling unscrupulous tax preparers to hide unjustifiably huge fees behind a veneer of speedy tax refund loans.
But now, with the extensive restrictions placed on RAL lenders and RAL-focused tax preparation offices, the fees from Refund Anticipation Loans are way down relative to the overall fees that come in during tax season. This can make a big difference in your potential earnings as a tax preparer.
Essentially, tax preparers are now forced to make money actually doing tax returns, instead of just hoping for 3-5 RAL-hungry clients to walk in the door each day and then you just charge them $350 each on the tax prep fee and the customer barely notices because all they’re concerned about it getting money within 24-48 hours.
Pronto Income Tax of California, Inc. always knew that RALs were a bad deal for clients, and therefore (and thanksfully) we didn’t come to rely too heavily on RALs for our “core income.” Some other tax preparation places, however, to put it mildly, may have focused a bit too sharply on generating RAL-related fees. There are many tax offices here in Los Angeles that relied almost exclusively on fees from Refund Anticipation Loans, and we are now in the process of watching these RAL-focused tax places go out of business.
The industry-wide reduction in RAL fees means that you, as a tax preparer, are able to make good money only when it’s pretty busy, or if you already have an established tax client base with whom to set appointments. In order to make good money, that is, you have to be doing tax returns, you can’t rely like lazy tax preparers of old that you could do 10 tax returns per week, charge each customer $500 for a RAL, and then go home and relax and pay bills.
Getting to the point here: you need to look at peak filing season as your best hope for good tax season income. You need to work as much as you can during peak filing season, and then, if you have other, more profitable things to do when it’s not peak filing season, you may need to go till those other fields.
Now what do mean by “peak filing season”? When exactly is this golden time?
Well, peak filing season is a two-part affair in most tax seasons. You have your January 20-February 20 peak filing season, when people who are getting tax refunds or trying to just “get this over with early” flood the tax offices looking for money back from the U.S. and California governments.
And then you have your March 25-April 20 peak filing season, when a lot of the really tough tax returns come out of the woodwork, and taxpayers are generally more irritable because this crowd often owes income taxes instead of getting refunds like the early crowd.
These are two relatively distinct demographic groups, and these are the two busiest—and therefore most valuable—periods of time to be doing taxes for pay. These are the “big days” where you can make $500-$1,000 per day if you are good.
You need to know, then, if you are working at a tax company, whether or not you are going to be working full days during those days. If you are working full days, does the company let you pick up clients that walk through the door? Does the company have clients walk through the door?
How “dominant” are the main tax preparers in your office? Remember that with tax preparers, popularity tends to prompt more popularity, because if people are going to you, well, you must be good. Do you, the “new one,” get a shot to do tax returns and collect fees?
All these are questions you must ask and factors you must consider.
But the bottom line, in the meanwhile, is that you have a much better shot to make some decent tax season money if you are working full-time or more than full-time from January 20-February 20 and then again from March 25-April 15.
When it comes time to make the tax season schedules, be wise and choose your long days accordingly, to maximize your tax season earnings.
3. Tips for Newly Self-Employed Tax Preparers
If you are seeking to become a self-employed tax preparer, you have a whole other set of issues to deal with, so we’ll give a you a few tips for the price of one in this section here.
On the one hand, the opportunity to make money as a self-employed tax preparer is good; everyone needs to do their taxes, many people get tax refunds so it’s not all that unpleasant of an experience mostly, and overhead can be kept low, you can do “house calls” to people’s houses or even do taxes out of your own house.
On the other hand, competition in the tax preparation industry is fierce and seemingly getting more fierce every year. H&R Block® and TurboTax® spend tens of millions of dollars marketing tax services and between Liberty Tax Service® , Jackson-Hewitt Tax Service® , and so forth and so on, some people would say that there are too many places in each area already, so what is the reason that we need yet another tax prep company?
Making the most of your opportunity as a self-employed tax preparer is a challenge, no one can doubt that. Luckily, it can be done. And we believe it can be done more quickly, and with more success, than you can achieve starting a lot of other types of businesses.
Here then are a few profitable tips for new self-employed tax preparers:
- Keep your overhead low, especially the year-round rent expense. Come August, you are going to be hurting big-time if you’re paying a high rent.
- Keep your upfront “capital expenditures” to a minimum. Unless you have significant cash resources and/or extensive credit that you’re willing to tap, remember that all you really need to taxes is a computer, tax software, a printer, a phone, and an Internet connection. The whole kit will probably cost you in the range of $2,000-$3,000, to do it halfway right. Don’t go spend $10,000 on capital equipment that, like a new car, depreciates instantly upon use.
- Find a niche. When you’re just starting out, you’re not going to know how to handle every kind of tax situation, so you may want to develop a speciality, an area of tax preparation in which you are really an expert, despite your relative newness to the field. Many tax preparers focus on one niche and find success. Some focus on a type of profession, such as police offers, or other tax preparers may focus on doing taxes for people who work at a certain company, where there is one tax preparer who pretty much takes care of all that company’s W-2 employees. Or you may focus on a particular ethnic group. You will need these “pools” of clients, these networks of people, in order to achieve the kind of scale needed to sustain a successful tax preparation business. Remember that word-of-mouth is always the best marketing for your tax business; to maximize word-of-mouth, choose people that are connected to each other somehow, so that when you get one client, you are within earshot of a few more potentials because hopefully your satisfied client will tell his or her friends and family to go to you.
Those are three helpful tips for anyone hoping to become a successful self-employed tax preparer.
Be Ready for the Question: “Why am I coming to YOU, of all people why YOU?”
Last but not least, whether you’re working at an income tax preparation company or you’re going out on your own as a self-employed tax preparer, you have to keep in mind that tax clients these days are extremely value-conscious. Each and every tax client is trying to decide, each and every year, why they are paying you to do their income taxes. They hear so much about doing their own taxes for free online, even getting taxes done free in a tax shop, and inquiring minds want to know:
“Why should I pay you to do my taxes? Why shouldn’t I just try to do my own taxes, or have my cousin do them? What do you know that I don’t?”
In the end, then, the ONLY way to actually make money doing taxes is to answer those value-based questions for the tax client, via your tax preparation work. You must strive at all times to make it readily apparent why you are the best tax preparation option that client has, this year and next year too, if you’re given the opportunity.
Whether it’s your amusing personality, your studious expertise, or your uncanny ability to pull a tax refund out of a hat, the tax client—and that tax client’s friends and family—will look for a reason to have YOU do the taxes, when there are so many other choices available.
Your ability to convey the value of your work to your client forms the basis of your relationship with that client and ultimately is the most reliable indicator of how much you can and will earn as a professional tax preparer. Always remember that when it comes to value, “perception is reality.” You should therefore work diligently to not only provide value for your clients, but to show that value to your clients whenever possible so that they know why they’re paying for your tax service.