If a young person were to ask me whether I would recommend getting into the tax preparation business, my response would be … NO.
Or at least, don’t “just” do taxes. Diversify and offer other accounting services.
This is a hard business. You have to know what you’re getting into.
If you prepare simple 1040s, you’ll be dealing with a lot of clients who view you as just a commodity. They’ll jump ship if someone cheaper comes along, or if they decide to get brave and do it themselves in TurboTax.
I don’t think Congress will ever truly simplify the tax code, but constant innovations in technology will make it easier and easier for people to file their returns quickly and painlessly — by themselves.
Imagine a system where a person takes a picture of their W-2 with their phone and uploads it into an app that populates the person’s 1040. All that’s left to do is hit “submit” and the person would be done with taxes for the year.
The tax prep industry is already losing a lot of the folks with “easy” returns to the DIY software. I doubt that trend will change.
If you try to specialize in more complex 1040s, you’re going to have to spend money on better continuing education and research materials. You can charge higher fees but you’re also taking on more risk because there’s a higher likelihood of making a mistake.
That being said, this can also be a rewarding field. Taxes are like a giant, never-ending riddle. I learn something new every single day. I really do.
I truly get a high off of things like rebuilding 7 years worth of information for a taxpayer who holds ethanol plant investments. The taxpayer received K-1s from these plants, and the person’s prior preparer royally botched the returns.
So I had to go back to the first year of investment in these plants and re-calculate basis, disallowed passive losses and the proper loss carryforwards, the correct DPAD deductions and DPAD carryforwards, and the allowed production credits and the corresponding credit carryforwards. There were also issues involving obscure Iowa tax credits that flowed through to this person.
Oh, and one of the plants was located in a different state and produced large losses for a few years, so I had to calculate the correct net operating loss in that state for a series of years so that we know how much NOL was left to use up in 2012 on that particular state’s return.
This involved basically re-doing their returns for the last 7 years. I did many of the years by hand. When I was finished, I was proud of my work.
But make no mistake — when you take on projects like that, you’re taking on risk, because the client is counting on you to get it right.
So what point am I getting at?
I guess what I’m saying is, this can be a rewarding field. But it’s not for everyone. What do other tax pros think? Is this a good field for a young person to get into?