Why Start A Professional Tax Practice

 

While there are many reasons to become a tax preparer, why would you want to start your own tax preparation business? You could continue working for a tax preparation company or tax service such as H&R Block or a tax firm. However, several of the more immediate benefits to starting a professional tax practice include the ability to achieve the following three goals:

 

  1. Work-life balance. You set your own schedule and work as much as you want, when you want.
  2. Financial security. How much do tax preparers make? While it may take some several years to build financial independence, successful tax seasons indicate you will receive quality referrals and more business.
  3. Job flexibility. You can choose your own niches, services and industries, and decide what kind of work you’re most interested in doing.

 

Small business owners are entrepreneurs, innovators and self-starters who would rather work on improving their companies, and finding clients and customers, than spending precious time on back-office details, including their taxes. They need strong, proactive tax preparers who offer tax services with business and individual tax returns, but they also need more than just a processor of information. They need empathetic advisors and tax planners who understand the needs of small business.

The difference between owning your own tax practice and working for someone else is simple: it's your baby, and while you may not exactly have the same entrepreneurial spirit other small business owners thrive on, you will shine in other ways. Starting your own professional tax practice is definitely a possibility. After all, if others have done it and succeeded, why can't you?

Of course, there's more than simply hanging out your own shingle, especially when it involves a business where you work with the public, retain topical technical knowledge and market your services in a crowded marketplace. Let's go on a journey with three tax planners and preparers who each took a giant leap to start their own practices. Along the way, you're sure to find parallels with your own background and experience, and discover the passion all three have with being your own boss.

This article will cover the following topics:

Three Practitioners with Three Very Different Stories — An introduction to three tax preparers and their respective backgrounds
Work-Life Balance — How starting your own practice affects home life
Financial Security — Is this line of work recession-proof?
Job Flexibility — There's more to this line of work than just benefits to home life
The Right Time to Start a Practice — The best time can vary based on your circumstances
Additional Resources — Get more information on HOW to start your own practice

 

Who They Are: Three Practitioners with Three Very Different Stories

 

It's a fact that no two tax practices are alike. There are differences everywhere you turn, from the way a firm is structured and the types of clients served, to niche services and industries, tax preparation and accounting software, and the owners' backgrounds. Here's a snapshot of all three preparers.

 

Barbara Dunagan

 

Barbara owns her own practice, Integrity Tax and Notary Service, in Whittier, Calif., located on the borders of Orange and Los Angeles Counties. She started her practice in January 2016 after a 20-year career as a tax professional and instructor with a household-name tax preparation service.

Software: ProSeries®.

"I wanted to help people who not only needed my services and tax guidance, but also respected the work I did."

Vincent Servello III, CPA

Vinnie has a very different background from Barbara. He interned and worked full time at a small CPA firm in Scarsdale, N.Y., and a Big 4 firm in Boston, Mass., then transitioned to the private sector as a tax manager with a property company in Boston. While working there, he started his own firm in 2014 with evening appointments at his home in Grafton, Mass. In early 2019, he transitioned to working full time in his practice.

Software: ProSeries, Intuit Link, QuickBooks® Online Accountant and QuickBooks Desktop.

"Work-life balance and quality of work. I'm able to see my family and spend more time with them, while also finding and keeping interesting clients who truly want to grow. It's rewarding and an adrenaline rush."

Susan Tinel, EA

What's a retired professional ballroom dancer doing in tax planning and preparation? Susan owns her own practice, April 15 Taxes, Inc., in San Diego, Calif., after enjoying a multi-year career dancing with her husband, Pierre-Yves, who now serves as the firm's CFO. Susan started her practice part-time in 2004, and when she retired from dancing, opened it up full time in 2010.

Software: Intuit ProConnect Tax Online, Intuit Link, eSignature and QuickBooks Online Accountant.

"I enjoy the marriage of accounting and technology, and am proud that my firm was an early adopter and leader in cloud-based tax and accounting."

Work-Life Balance: The #1 Reason People Start a Practice

 

How does starting your own tax practice affect work-life balance? Are there enough hours in the day and night to run a business, while also trying to have a home life?

 

The home and family dynamic is very different for Vinnie, Susan and Barbara. Barbara's three children are grown, but the reason she stayed with the former tax prep business for so long was the flexibility of seasonal work, even though she also helped clients with year-round issues.

 

Vinnie, the youngest of all three, is married with a son who will be three years old in 2019. Vinnie's wife works full time, so their son goes to daycare a few days a week and is also looked after by his grandmother. Achieving work-life balance was a key driver for Vinnie to start his own practice; he previously had an average three-hour commute to and from Boston.

 

Vinnie: "At first, I saw clients at home at night and on weekends when my son was just a baby, but now that he's older, it's just not conducive to meeting at home, so I opened up my office in March 2018," he said. "I have clients in other states, but primarily focus on local business. Being able to separate work from home is key."

 

When Susan and her husband were involved in dance, work-life balance was nonexistent:

 

Susan: "The life of a dancer is horrible; we gave lessons during the day, while dancing at night, on weekends and holidays — there was no such thing as a home life. Now that I have my tax business, there is a lot more balance. There is an end to the day, I have weekends mostly free, and when banks and the IRS are closed, we're closed."

Financial Security: What Can I Expect?

 

It's often said that many tax professionals go into this line of work because tax and accounting is fairly recession-proof, but what kind of tax preparer security can you expect if you own your own practice?

 

How much base income should I expect?

 

  • Based on May 2017 figures (the latest date statistics were available), the Bureau of Labor Statistics reports the top annual earning for tax preparers was $107,880 in the District of Columbia ($107,880), while Colorado ($73,740), Massachusetts ($62,300), California ($61,970) and Oregon ($57,720) round out the top five states.
  • Glassdoor reports the average U.S. annual base pay for a tax accountant is $75,479.

 

Hourly rates differ as well:

 

  • According to the 2018 Intuit Rate Survey, rates for tax and accounting professionals increased by 19 percent since 2016, the last year the survey was conducted. 
  • The hourly rate for practitioners ranged from $101/hour for those living in urban areas, to a range of $74 to $86 for suburban areas, mid-sized cities, rural or sparse areas, and semi-rural areas.

 

What kinds of numbers can you expect if you start your own tax practice business? According to all three tax pros, it depends on several variables: what you charge (hourly rate vs. value pricing), overhead expenses, staffing and technology. However, all three agreed that the bottom line depends less on tangible factors and more on a state of mind; the more you put into a practice, the more you'll get out of it.

 

Intuit has a calculator that helps tax pros like you figure out what you should charge.

 

Vinnie: "When you own your own practice, you wear every role, from janitor to partner, so when you give up the security of a paycheck every two weeks, you wonder if you'll really be able to pay the mortgage and bills. You can worry about it night and day, but if you work hard in the nitty-gritty of tax season, while also developing a tax planning and advisory practice year-round, you're going to survive."

 

How soon will I begin realize the benefit?

Now that he has a full-time practice, Vinnie is considering adding staff for busy season or hiring talent on a per-diem basis from other firms. He also hopes to bring on some administrative support. For the time being, he is relying on technology with schedulers and appointment builders on his website.

 

Susan envisioned an increase in her earnings when she knew it was time to hang up her dancing shoes. Although she had already started her practice on a part-time basis, she believes her edge on the competition and what's enabled her to grow is that she has worked in small businesses most of her life. She understands the needs of other small business owners, a quality her clients appreciate as well.

 

What about the risks?

When she left her full-time tax position, Barbara knew she was taking a risk. Setting aside a certain amount of money to open her office and spending the bare minimum the first year to ensure she was in a safe zone, she likens the change to a "gamble." Even though her husband also works, she maintains several other positions outside her tax practice, including handling the union payroll for a sheet medical company and as a medical aid for a local elementary school. At age 55, her main concern now is having enough money for the long term.

 

Barbara: "I'm making three times the money I made while working with the tax prep service. I did 920 returns the first year and more than 1,100 last year. I feel the work is going to steadily increase, so I'm mostly concerned about Social Security and retirement planning — the same things other small business owners think about."

Job Flexibility: Determining Whom You Want to Serve Makes a Difference

 

All three tax professionals said having a home life was a primary reason they went into business for themselves, but they also believe there's more to starting your own practice with regard to finding the work you want to do vs. only doing traditional tax preparation for other owners.

 

For example, Barbara identified a niche in working with Uber and Lyft drivers, and now produces more than 200 returns for this sector.

 

Barbara: "I did my research and figured out they needed tax services, but also needed tax planning, advice and guidance on how to run a microbusiness, including what they can and can't write off."

 

When Barbara left her job with the tax preparation business, she quickly joined the local chamber of commerce. Word of mouth ensued; previous clients found out she left the tax prep company and promptly began working with her.

 

Barbara: "I never want to just have a seasonal practice; once you build up a rapport with your clients, there are lots of things you can help them with above and beyond tax. For example, I counsel clients who are in debt and need to get their finances in order, and also help them with credit card consolidation."

 

Another interesting aspect of her business is the ethnicity of clients who do not speak English.

 

Barbara: "These are made up of mostly Spanish-speaking clients, but I also have one Japanese and one Korean client. I don't speak these languages, so they bring a translator with them to appointments. The bottom line is I love helping people succeed and I love my clients!"

 

Vinnie focuses on several other niches with hair salons, spas and auto repair/auto body businesses. Clients range from solopreneurs to businesses with 25 employees, and his largest client is a multiple-location nursery school. Similar to Barbara's practice, word of mouth is very important for referrals.

 

Vinnie: "I started out doing family tax returns, then progressed to friends' returns, and then friends of friends' tax preparation. However, I want to be careful about not taking everything that comes through the door. It's a vetting process and I'd rather have quality over quantity."

 

Vinnie is also involved in his local chamber of commerce, has experimented with small ads for tax season and maintains several social media accounts, including one surprise: Pinterest, with more than 1,300 followers. Yelp and Google provide a lot of leads, he keeps his LinkedIn current and also works on his website's search engine optimization to make sure he's "found."

 

Susan, too, has her own niches: construction, real estate brokers, rental companies and flippers, and professional service executives. Even though her clients' businesses are different, there's one constant: she only wants to work with people whose businesses are in the cloud.

 

Susan: "I run across prospects who want to work with me, but prefer desktop solutions to the cloud, so I refer them out. However, if they are wiling to make the transition to the cloud, then I will work with them on the conversion, ensure their tax forms and filings are virtual, and their businesses are running smoothly. Mostly, I enjoy working with small business owners to help them solve their issues related to tax return complexities, and even have some non-resident filers in Canada who need my help."

When is the Right Time to Start Your Practice?

 

There's neither a secret sauce nor a playbook on the right time to start your own practice. The decision is based on a number of factors, as we've explored with our three practitioners. At the end of the day — and based on their own experience — each one offers his or her advice:

 

Barbara: "You have to have the motivation and mentally be ready. When you start out, you have to work with a state of mind that you're ready to put the time in to make it work. I wanted to open my own practice sooner than I did, but ‘sooner' wasn't ready for me. If you have doubts, give it another year. For me, it's worth every second I put into it."

 

Vinnie: "You must have an adequate foundation in place. Right out of college, you won't have the credibility you need to bring in larger clients or solopreneurs. Clients want to know they are in good hands."

 

Susan: "There are two types of people: owners and employees. Either you do this or you don't. You'll never really be ready — you just have to do it. If you try and prepare yourself to go out on your own, you'll never get there."

Resources for More Information

 

ARTICLE: How to Start Your Professional Tax Practice — How to register your business, obtain an electronic filing identification number, get a preparer tax identification number, define your practice, and get tools to streamline tax preparation and market your services.

 

TOOLS: Professional Training Center — Stay updated on product training, security and compliance, and tax law.

 

TOOLS: Starting a Business — What business owners need to know to stay compliant with the IRS.

 

LIBRARY: Marketing Your Services — Extensive Intuit marketing library of articles and resources on topics ranging from setting your strategy to getting more leads, onboarding clients, staying connected and much more.

 

LIBRARY: Intuit ProConnect Tax Pro Center — Continuously updated with articles on tax law and news, practice management, client relationships and more; peer-to-peer and tax expert advice for your practice.

See our tax products and services