License Required for Tax Preparers
To be a tax preparer and receive a fee for your work, you should have a working understanding of the tax code, a good grasp on available deductions, exemptions and credits and knowledge of how they apply to the individual or small business tax return. Not every state requires a trade-specific license to charge a fee for tax preparation services. Business license and other requirements do apply. States do license certified public accountants, however.
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Tax Preparation Licenses
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As of 2011, only a few states, including, California, Oregon and New York, currently license tax preparers as a condition of doing business. Each state's requirements and procedures are different. You may need to post a bond or otherwise demonstrate that you have some sort of liability coverage to protect your clients.
Preparer Tax Identification Number
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A preparer tax identification number, or PTIN, is a unique identifier the Internal Revenue Service assigns to professional tax preparers to assist with accountability, quality control and routing inquiries and questions if there are issues with a specific tax return. To obtain a PTIN, you can download and fill out Form W-12 from the IRS's website (see Resources). All paid tax preparers must have a PTID from the IRS. There is a $64.25 fee to obtain the PTIN.
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Business Licenses
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If you are hanging out a shingle of your own, you must obtain a business license. The procedure varies by jurisdiction, but in most cases you must obtain a business license or business tax receipt from your city or county government. You may also need to charge a sales tax on your transactions.
Supervised and Unsupervised Preparers
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To sign an individual tax return as a paid preparation professional, you must have passed a competency exam with the IRS, or already be a CPA, enrolled agent, actuary, attorney or similar allied professional. To be authorized to sign a return, you must be a member of one of the above professions, or be a certified tax return preparer, which means taking and passing the Registered Tax Return Preparer Exam. If you have not done so, you can prepare tax documents under the supervision of a PTIN holder, however.
Certified and Licensed Public Accountants
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Each state has a board in charge of licensing and certifying CPAs, or certified public accountants. Again, procedures vary state by state. Contact your state government's board of standards or licensing board, or the American Institute of Certified Public Accountants, for more information. Some states may also require you to form a specific entity, such as a professional services corporation, to do business as a CPA firm, including the preparation of tax returns.
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