Starting a Tax Preparation Business Without an EFIN

Key Takeaways

• Start small and be aware that completing tax returns and e-filing are two different tasks.

• Be Choosy with Tax Calculation Software: Choose software that can handle all the services you currently offer as well as help you grow in the future.

• Apply Early: If you want to obtain an EFIN, the IRS states it can take up to 45 days to process your application for approval.

Introduction

Starting your own tax preparation business can be exciting, especially if you already have tax knowledge and want to turn it into a career. But there is one question almost every new preparer asks: Can I start without an EFIN?

The answer is yes, with an important catch. Preparing tax returns and electronically filing them are not the same thing. If you plan to e-file federal returns for clients through your own operation, you'll need to become an authorized IRS e-file provider and obtain an EFIN. The IRS says the application process can take up to 45 days, so planning ahead is important.

Here's how beginners can get started.

Step 1: Decide What Services You Want to Offer

Prior to selecting software to buy for your business, decide what types of tax returns you intend to complete for your clients.

Do you want to do only individual 1040 returns or will you also complete returns for small businesses, partnerships, estates and/or trusts? How you answer this question will help guide you to the best education, tax software and workflow for your specific business.

If you’re planning a tax preparation partnership no efin, then don’t assume you can e-file individual returns without first getting an EFIN issued to a firm, and having all preparers listed on the approved firm’s EFIN for e-filing of client returns.

Step 2: Get Your PTIN

If you're paid to prepare federal tax returns, you'llgenerally need a Preparer Tax Identification Number, or PTIN. PTIN and EFIN serve different purposes. Your PTIN identifies you as a paid tax preparer, while an EFIN identifies an authorized e-file provider firm.

Understanding this difference early can prevent confusion when you're setting up your business.

Step 3: Choose Professional Tax Software

The right tax calculation software can make a huge difference when you're building your workflow. Don't choose based solely on price.

Look for software that supports the returns you expect to prepare, provides current tax calculations and forms, handles state returns when needed, and fits your future e-filing plans.

If you plan to specialize in estate or trust returns, make sure your software supports the forms and schedules those clients require. Choosing software that can grow with your practice is usually smarter than switching systems after your client list expands.

Step 4: Apply for Your EFIN When You're Ready

When you're ready to electronically file returns for clients, begin the IRS authorization process.

The IRS currently outlines three basic steps: create an IRS e-Services account, submit your e-file application, and pass the required suitability check. Depending on the applicant's circumstances, the process can include fingerprinting, along with checks related to tax compliance, credit, criminal background, and previous e-file compliance.

There is no fee for the application, according to the IRS, but approval can take up to 45 days.

Step 5: Build Your Client Workflow

Don't sit around waiting while your application is underway!

Establish safe means of collecting and processing documents, making telecommunication easy, review returns, get signatures, and keep records. Determine the processes for dealing with missing information and safeguarding sensitive taxpayer information.

It's also a great opportunity to get used to your tax computation software. Before working with a full client load, practice creating returns and reviewing diagnostics, checking the calculations and errors.

Step 6: Know When E-Filing Becomes a Requirement

The IRS e-file rules matter as your practice grows. Specified tax return preparers who reasonably expect to file 11 or more covered individual, trust, or estate returns during a calendar year generally fall under the federal e-file requirement.

So, don't build your entire business around staying below a particular threshold. If you expect your practice to grow, prepare for electronic filing from the beginning.

For a tax preparation partnership, no efin, that means understanding how your firm will handle returns before you start accepting a large number of clients.

Conclusion

Starting a tax preparation business without an EFIN doesn't mean you have to put your plans on hold. Begin by defining your services, obtaining the necessary preparer credentials, choosing reliable software, creating a secure workflow, and planning for e-filing as your business grows.

If you're looking for professional tax software that can support specialized work, TaxDragon Pros offers tailored solutions for estate and trust tax preparation.

FAQs

1. Can I start preparing taxes without an EFIN?

Yes. An EFIN is associated with authorized electronic filing, so preparing returns and e-filing them should be treated as separate steps.

2. Is a PTIN the same as an EFIN?

No. A PTIN identifies a paid tax return preparer, while an EFIN identifies an authorized e-file provider firm.

3. What should I look for in tax software?

Choose tax calculation software that supports your return types, provides current forms and calculations, fits your workflow, and can support your business as it grows.

4. Can a partnership operate without its own EFIN?

You may be able to begin preparing returns without one, but your firm's e-filing arrangements must comply with IRS requirements. EFINs are issued on a firm basis.