Tax Preparation Business

[ferco]

I know a business friend who wants to go into the tax preparation business. They've done some work in the past as a tax preparer but wants to know of others who have pursued this adventure and some of the landmines that await her or should she even pursue it. Your opinions and experiences (pro and con) would be appreciated.

Ferco

[saluki9]

Well, you can make a lot of money with very little actual work.

Let me give you an example. There is a guy who I know, and we keep running into each other at industry events. This guy works as a part time financial advisor. He really wants to dump his tax preparing business and go to work full time as an advisor. Problem is it's just too profitable.

Tax Prep is one of those jobs that in reality is worth about $15-20 and hour, and yet people hate doing their taxes so much that they will pay many multiples of that. This guy I mentioned says he charges $500 for his most basic return. Being a recovered CPA I did the math in my head and figured that if you're a really careful preparer that works out to about $750/hour which is what a really good tax attorney gets.

Even if you're in an area where $200 is the norm, it's still an easy, but monotonous job.

[retire@40]

Quote:

Originally Posted by saluki9 ...This guy I mentioned says he charges $500 for his most basic return...

And how does he define "basic?" Doesn't sound realistic.

[OAG]

Having done this years ago (mostly before computers were really available (think Apple //e or early 80's PC)) it is very profitable but be sure one outlines what services they plan to offer. I did some individual representation with the IRS and really did not know what to charge for the services so usually I probably was under paid for the service. Additionally, today I would be very sure to have some E&O (errors and omissions insurance - probably called something else now) even for just basic preparation services. If you are really small business and want to grow it by "word of mouth" it helps to cultivate others that can "steer" clients to you (like Real Estate Offices and or Agents, other accountant's for overflow work). It is mostly seasonal (unless you go into the negotiation field (I would suggest attaining "Enrolled" status with the IRS before going this route)). Very good small business for someone that is ER and looking for "something to do" that can be limited to a couple of months a year - but be forewarned, if you are good, and offer good service, it can become a very hectic couple of months.

[saluki9]

Quote:

Originally Posted by retire@40 And how does he define "basic?" Doesn't sound realistic.

All depends on your area. I live in an expensive area Most CPAs around here charge $750 or $1K for a 1040 + A,B and 1040IL


I think even H&R Block charges $300+ locally for a simple return.

[retire@40]

Quote:

Originally Posted by OAG ...Very good small business for someone that is ER and looking for "something to do" that can be limited to a couple of months a year - but be forewarned, if you are good, and offer good service, it can become a very hectic couple of months.

Along with slapping some numbers on a piece of paper or inputting some numbers in tax software, the "something to do" better include understanding depreciation methods, knowing how to do proper tax research, handling IRS notices, and having a good knowledge of the tax law as it applies to each individual.

[OAG]

Quote:

Originally Posted by retire@40 Along with slapping some numbers on a piece of paper or inputting some numbers in tax software, the "something to do" better include understanding depreciation methods, knowing how to do proper tax research, handling IRS notices, and having a good knowledge of the tax law as it applies to each individual.

Some things go without saying!

[retire@40]

Quote:

Originally Posted by saluki9 All depends on your area. I live in an expensive area Most CPAs around here charge $750 or $1K for a 1040 + A,B and 1040IL I think even H&R Block charges $300+ locally for a simple return.

I almost want to say that's bull, but who am I to say what you say they charge.

Here is a more realistic idea of what fees are based on real stats:

NSA Finds Average Cost of Tax Returns

NSA found the mean cost of preparing a non-itemized Form 1040 to be $110 For an itemized Form 1040 with Schedule A, the cost is $201.
Where one lives can make a difference in the fee paid. For example, accountants in the Midwest charge a mean of $96 (non-itemized Form 1040) and $163 (itemized Form 1040), while those in the Northeast, South, and West charge between $111- $116 for a non-itemized return and between $205- $226 for an itemized return.

[VaCollector]

Quote:

Originally Posted by retire@40 I almost want to say that's bull, but who am I to say what you say they charge. Here is a more realistic idea of what fees are based on real stats: NSA Finds Average Cost of Tax Returns NSA found the mean cost of preparing a non-itemized Form 1040 to be $110 For an itemized Form 1040 with Schedule A, the cost is $201. Where one lives can make a difference in the fee paid. For example, accountants in the Midwest charge a mean of $96 (non-itemized Form 1040) and $163 (itemized Form 1040), while those in the Northeast, South, and West charge between $111- $116 for a non-itemized return and between $205- $226 for an itemized return.

Much closer to realistic IMO....and I ER'd from my tax practice in 2007....my starting fee for a 1040 with SCH A,B and state return was $150....it went up from there BUT price was also dependent on just HOW the information was presented to me! ....boxes full of stuff cost more than well presented data!

STILL....a nice business IF #1 - you can attract eneough clients and #2 - (if you're successful at #1) you can stand an 80+ hour work week for 3 and 1/2 months.....only additional stress is trying to keep up with all of the IRS changes as well as your STATE changes (especially if they don't conform to the FED changes!).....

I'm still doing it during "tax season" only....and at MY pace.....and will as long as the accountant that bought my practive needs me and pays me what (I think) I'm worth

[retire@40]

Quote:

Originally Posted by VaCollector ...I ER'd from my tax practice in 2007....my starting fee for a 1040 with SCH A,B and state return was $150....it went up from there BUT price was also dependent on just HOW the information was presented to me! ....boxes full of stuff cost more than well presented data! STILL....a nice business IF #1 - you can attract eneough clients and #2 - (if you're successful at #1) you can stand an 80+ hour work week for 3 and 1/2 months.....only additional stress is trying to keep up with all of the IRS changes as well as your STATE changes (especially if they don't conform to the FED changes!)...

You paint an accurate picture.

Doesn't sound at all like "making a lot of money with very little actual work."

[saluki9]

Quote:

Originally Posted by retire@40 You paint an accurate picture. Doesn't sound at all like "making a lot of money with very little actual work."

I didn't mean to say it isn't time consuming, but it's not rocket science. Most of the guys I know who still do returns only do the more complex returns and have the simpler stuff filled in by office workers. The client's don't seem to get a discount for that.

I'm still fairly active in the IL CPA society and I've never met anybody that would do a return for $150 in the Chicago area. In more rural areas sure, but not near the city. Maybe you guys need to raise your prices?