What you need to do before you take your first client

Starting a virtual tax preparation business means you will need a tax preparer credential, tax software, a way to securely share documents with clients, and liability insurance. You do not need a business degree or accounting background, but you do need to pass a test and register with the IRS. The fastest path is to become an Enrolled Agent through the IRS, which takes three to six months and costs under $500 in exam fees. If you want to work faster, you can start as an tax return preparer without credentials in some states, but your options will be limited and you will face restrictions on what you can charge and what returns you can prepare.

The IRS requires anyone who is paid to prepare tax returns to have one of three credentials: Enrolled Agent, CPA, or attorney. If you have none of these, you can still prepare returns in some states under a PTIN (Preparer Tax Identification Number), but you will be limited to straightforward returns and cannot represent clients to the IRS. Most people starting out choose the Enrolled Agent route because it is the most affordable and does not require a four-year degree.

Key Takeaways

  • You must obtain a PTIN from the IRS and either become an Enrolled Agent, CPA, or attorney, or work under one of those credentials as an employee.
  • Enrolled Agent status requires passing a three-part IRS exam and costs between $400 and $500 in exam fees, with study time ranging from three to six months.
  • Virtual tax preparation requires find document-sharing software, tax preparation software (such as ProSeries, Lacerte, or TaxAct), and professional liability insurance.
  • You will need a business structure (sole proprietorship, LLC, or S-corp), a separate business bank account, and bookkeeping to track income and expenses.
  • Client acquisition typically starts with referrals, local networking, and a straightforward website; paid advertising usually comes later once you have capacity.

Getting your IRS credentials and PTIN

The first step is to register for a PTIN at irs.gov/tax-professionals. You will need an Individual Taxpayer Identification Number (ITIN) or Social Security Number, and the registration takes about 15 minutes. The PTIN is free and must be renewed every year. However, a PTIN alone does not let you prepare returns for money—you also need one of the three IRS-recognized credentials.

An Enrolled Agent is an IRS-certified tax professional who has passed a three-part exam called the Special Enrollment Examination (SEE). You do not need prior work experience or a degree to sit for it. The exam covers individual income tax, business income tax, and representation and ethics. You can take the three parts in any order, and you have one year to pass all three once you pass the first part. Study materials are available from the IRS and from test-prep companies like Surgent, Bisk, and Gleim, which typically cost $200 to $400. Exam fees are about $100 per part, so $300 total. Once you pass all three parts, you explore for enrollment through the IRS, which takes four to six weeks.

If you already hold a CPA license or law degree, you can use those credentials instead. If you do not have either and do not want to pursue Enrolled Agent status, you can work as an employee under someone else's credential—for example, as a tax preparer at a firm owned by a CPA or Enrolled Agent. This lets you start when ready but limits your independence and earning potential.

Choosing and setting up tax software

Virtual tax preparation requires software that lets you prepare returns on your computer and securely send them to clients for review and signature. The three main options used by professionals are ProSeries (Intuit), Lacerte (Intuit), and TaxAct Professional. ProSeries is the most common choice for small firms because it is affordable and handles most return types. Lacerte is more powerful and handles complex returns but costs more. TaxAct Professional is the least expensive option and works well for straightforward to moderate returns.

Pricing varies by year and by the number of returns you prepare. ProSeries typically costs $300 to $600 per year for a single user, plus per-return fees if you exceed a certain number. Lacerte runs $1,000 to $2,000 per year. TaxAct Professional is around $200 to $400 per year. All three let you e-file returns directly to the IRS, which is essential for a virtual business. You will also need a separate document management system to collect client information securely—common choices are Dropbox, OneDrive, or specialized tax software like Canopy or Sharefile, which integrate with tax software and encrypt files automatically.

Before you buy, contact the software company and ask about their preparer discount or trial period. Many offer discounts to new preparers in their first year. You should also verify that the software works with your operating system and that it supports e-filing in your state.

Setting up find client communication and document sharing

Clients will send you sensitive information—Social Security numbers, W-2s, 1099s, bank statements, and mortgage documents. You must handle this securely or you risk a data breach and liability. The IRS does not mandate a specific tool, but it does require that you protect client data and that you can prove you did so.

The simplest approach is to use a find file-sharing service with encryption and password protection. Dropbox, Google Drive, and OneDrive all offer this, but they are not designed for tax work. Better options are Canopy, Sharefile, SmartVault, or Citrix ShareFile, which are built for tax and accounting firms and include audit trails, client portals, and automatic encryption. These cost $50 to $200 per month depending on storage and features. If you are just starting, Dropbox with password-protected folders is acceptable as long as you document your security practices and use strong passwords.

You will also need a way to collect client signatures on tax forms. DocuSign and Adobe Sign are the standard tools and cost $10 to $40 per month. Both integrate with tax software and create a record of when the client signed.

Registering your business and getting insurance

Decide on a business structure: sole proprietorship, LLC, or S-corp. A sole proprietorship is the simplest and requires no registration in most states—you just use your name and file a Schedule C on your personal tax return. An LLC provides liability protection and costs $50 to $500 to register, depending on your state. An S-corp offers tax savings if you earn over $60,000 per year but requires more paperwork and accounting. Most new tax preparers start as sole proprietors or LLCs.

Open a separate business bank account in your business name. This keeps your personal and business finances separate and makes bookkeeping much easier. You will need your Social Security Number, EIN (if you have an LLC), and a copy of your business registration or DBA filing.

Get professional liability insurance, also called errors and omissions insurance. This covers you if a client sues because you made a mistake on their return. Costs range from $400 to $1,000 per year depending on your revenue and the number of returns you prepare. Providers include The Hartford, Hiscox, and CNA. Many require you to have your Enrolled Agent credential or CPA license before they will insure you.

Building your client base and marketing

Most new tax preparers get their first clients through referrals from friends, family, and former employers. Tell people you know that you are starting a tax preparation business and ask them to refer clients. Offer a small discount or referral bonus for the first few clients to build momentum.

Create a straightforward website with your name, credentials, services, and contact information. You do not need anything fancy—a one-page site on Wix or Squarespace costs $10 to $20 per month. Include a clear statement that you are an Enrolled Agent (or whatever credential you have) and that you prepare returns virtually. Add a contact form so potential clients can reach you.

Join local business groups, chambers of commerce, or networking organizations. Tax preparation is a service business, and word-of-mouth is your best marketing channel. Attend meetings, hand out business cards, and follow up with people you meet.

Once you have a steady client base, consider paid advertising through Google Ads or Facebook, but most new preparers find that referrals and local networking are enough to fill their schedule. Tax season (January through April) is when demand is highest, so plan to start your marketing in October or November of the year before.

Managing your time and pricing your services

Virtual tax preparation lets you work from anywhere, but it also means you are responsible for managing your own schedule and workload. Most preparers charge by the return rather than by the hour. Prices vary by location and complexity, but a typical range is $150 to $500 per return for individual returns, and $300 to $1,500 for small business returns. Complex returns with rental income, investments, or self-employment income cost more.

Track how long each return takes you. In your first year, you may spend three to five hours on a straightforward return and eight to fifteen hours on a complex one. As you gain experience, you will get faster. Use this data to set your prices—you want to earn at least $50 to $75 per hour after expenses.

Set clear boundaries with clients about important date, communication, and revisions. Tell them when you need documents by, how you will communicate (email, phone, or a client portal), and how many revisions are included in your fee. During tax season, you may need to limit the number of new clients you take on so you do not get overwhelmed.

Staying compliant and continuing education

If you are an Enrolled Agent, you must complete 16 hours of continuing education every two years to keep your credential. The IRS publishes a list of approved providers. Courses cover tax law changes, ethics, and specific topics like business returns or rental property. Most cost $20 to $100 per course.

Keep detailed records of all client work, including copies of returns filed, correspondence, and any information you gave. The IRS can audit a return up to three years after it is filed, and you may need to defend your work. Store these records for at least seven years.

Stay informed about tax law changes. The IRS website (irs.gov) publishes updates, and tax software companies send alerts when the law changes. Subscribe to a tax newsletter or join a professional organization like the National Association of Enrolled Agents (NAEA) to stay current.

Frequently Asked Questions

Do I need an accounting degree to become a tax preparer?

No. You do not need a degree to become an Enrolled Agent or to prepare tax returns. You only need to pass the IRS exam and register for a PTIN. Many successful tax preparers have no formal accounting education—they learned through study and experience.

Can I prepare taxes part-time while working another job?

Yes. Many people start a tax preparation business as a side business during tax season (January to April) and work another job the rest of the year. However, you will need to manage your time carefully and make sure you have enough capacity to serve your clients well.

What happens if I make a mistake on a client's return?

If you discover the error before the return is filed, you can correct it and refile. If the error is discovered after filing, you will file an amended return (Form 1040-X) for the client. Professional liability insurance covers the cost of amended returns and any penalties the client incurs due to your error, up to your policy limit.

How much can I earn as a virtual tax preparer?

Earnings depend on how many returns you prepare and what you charge. A preparer who handles 100 returns per year at an average of $300 per return earns $30,000 in gross revenue. After expenses (software, insurance, marketing, and taxes), net income is typically 50 to 70 percent of gross revenue. As you grow and specialize, you can raise your prices and earn more.

Do I need to be licensed in every state where I have clients?

No. An Enrolled Agent credential is recognized nationwide by the IRS and lets you prepare returns for clients in any state. You do not need separate state licenses. However, some states have additional rules about advertising or client communication, so check your state's tax department website before you start.