I have couple questions regarding the new business I'd like to open in NJ State:

- I have completed the IRS free training seminar on IRS.gov and have MBA in accounting - is that enough knowledge to start my own small business of preparing individual tax returns for small fees? Do i have to have CPA license to practice?

- can I use my SS# as tax id number since i am just starting out and don't want to incur unnecessary LLC or Corp. expenses?

- Without the CPA license, can I eventually venture into small business tax return world also? I don't plan on doing the audits since that is definitely CPA's job but just for bookkeeping and tax returns part, can I also accept small business clients?

I appreciate your time.

Yes, you can do tax returns.
You need to get PTIN from IRS (for free), which you will use on the tax return instead of SSN.

What about the business tax returns part of the question - can I fill out business tax returns? Where can I learn about what needs to be done for these returns?

Given your accounting background, and with the purchase of a good professional-level tax software package, setting up a business to prepare individual returns should NOT be a problem. To date, there is no specific licensing or testing requirement to prepare federal returns.

You MAY have a licensing requirement to prepare NJ returns within the state of New Jersey, however. A visit to the NJ state tax website should resolve that question.

Since it is likely that you will also prepare New York state tax return, note that there is a new requirement to register with the NY state tax department and pay a $100 fee to enjoy the right to prepare NY state tax returns. See the link below for more information, though NY state is NOT YET accepting registrations.

New York State tax preparer registration

Could you elaborate on the "Good professional level tax software package" - it seems like there are too many out there in market, and I can not decide which is best for me to be able to 1) fill number of diff tax returns using the same software and 2) be able to efile for all customers right through the package - let me know.

Also, how do u market your services? Word of mouth is definitely one way but what else do you do?

I use the professional version of TaxAct, which serves my needs quite well.

It has an excellent interface, supports the state tax returns for every state that has a state income tax, is fairly priced (for BOTH the software and the efile option), plus they have software packages for corporate and partnership returns.

It is NOT as sophisticated as some of the more expensive tax software packages (which can cost as much as $4,000), but I have not had a need for that level of sophistication.

How you market depends on your target audience.

If you are going to compete with H&R Block, Jackson Hewitt and Liberty for the average taxpayer, you need to advertise in your local paper, put out flyers, take out ads in your church bulletin, etc.

If you targeting a niche market, or only want to work high-end returns (small business, corporate, partnerships), you need to specifically target that niche.

You should definitely join the National Association of Tax Professionals (National Association of Tax Professionals), because they offer, research, support and training, plus they publish a monthly newsletter and a quarterly magazine which offers guidance on how to run and market your practice.

Tax Software for CPAs, Accountants, Tax Professionals, Prepare & Efile Income Taxes : TaxACT

On this page, there are a number of options which has me confused - like preparer's 1040, Preparer's 1040 state, 1065 and 1065 state etc. how do I pick the one I would need? Do I need to buy all of them?

There are also 1040 Enterprise and 1040 Edition bundles... can't decide which one I need especially since I am just starting and don't even have the first customer in door yet?

Perini1975:

For sure, buy the Preparer's 1040.

You will also at least need the NJ and NY state return programs. That will run you about $28. You can probably expect to prepare returns for Pennsylvania and Connecticut as well. This being the case, it would be best for you to buy ALL of the state return programs for a low $52. Even if you do NOT use more than four state return programs in the upcoming tax season, you WILL prepare 2009 returns (both federal and state) in future years when someone hires you to prepare back tax returns or to amend incorrect returns already filed.

Avoid the Enterprise editions for now.

I would not buy either the 1065 or the corporation returns software until someone walks through the door and hires you to prepare a partnership or corporate return. You will be able to buy this software when you need it anytime in the next five years with no problem.

You may wish to consider studying to becoming an Enrolled Agent as you get your business rolling. It's not easy but it will put you head and shoulders above the run of the mill tax preparer. See:
Enrolled Agent Information

As to tax programs I like Drake.

Drake IS an excellent tax program (I have reviewed their read-ahead software), but it is rather expensive In my opinion.

I Agree. Its too expensive for someone starting but thanks for the suggestions though I might use it in future when the practice is established.

I do have full time job - What can I expect to earn in the first year? I understand the answer could vary but what on average have you guys charged and have you seen people negotiating on the fees portion at all?

Tax preparation is a VERY competitive business. I did NOT make a profit for the first five years as a side-line business, because it takes quite abit of time to build up a client base.

Your profitability will rest on your ability to retain clients. You will NOT retain every client you get, as there is always a set amount of business turnover, but if you keep 80-to-90% of your clients from year to year, you will become proitable as your client base expands.

Eventually, you will reach the point where you cannot service all of your clients by yourself, in which case you will either have to refuse to take on additional clients or expand your business to a full-time operation with an office, employees, etc. along with the extra overhead that entails.

If you are good at what you do, you will be making money soon enough.

Good advice. Thanks.

Glad to help, and welcome to the world of the "100 days of Hell", where 18-hour workdays, no social or family life, tax clients with unrealistic expectations, and headaches brought on by staring too long at a computer monitor are the norm!

Be careful what you wish for! You just may get it!

If you are preparing a small business tax return, how often you actually meet with the client?

Do you only meet them at time of tax return filing before 4/15?

Do you have to file for extension if extension is needed in particular case? What are some of the things why client need an extension? Is there charge for it?

I have heard of clients meeting with their Accountant every quarter for paying taxes? What tax is this? Sales tax I presume. How to determine this amounts? And does it apply to all small business owners regardless of type of business? Where can I learn these nuances of business tax returns?

Sales tax filings for a business are usually MONTHLY, and, increasing, must be done electronically.

If a business has employees, then the withheld federal taxes (income, Social Security, Medicare) and state income taxes must be deposited at least monthly and, depending on the size of the company, as often as weekly, with a quarterly federal return (Form 941) and the state equivalent required to be filed on 15 Jan, 15 April, 15 June and 15 September.

Plus there is the annual unemployment tax, with state equivalent tax.

Review the instructions for IRS Form 941 for the quarterly filing requirement, and visit the NJ state website to find out about sales tax and their quarterly filing requirements.

Note that at the moment it is in fact possible to pepare tax returns with no licensing and/or qualifications. However, that is in the process of changing. The IRS is moving steadily toward a model that will require preparers to be licensed in some form.

In my view, this is a good idea.

I also endorse Five Rings comment -- get some type of licensing if possible such as becoming an EA or a CPA.

Finally, you absolutely should have some type of professional liability insurance.