A guide on how to start tax consulting business
Tax preparation services are not only required by large corporations, small businesses and individuals equally do. Tax law is somehow a complex subject. It takes somebody who has the expertise in the field to be able to interpret it correctly. That is why businesses and individuals usually engage a tax consultant to handle their tax matters for them. If you have expertise in tax matters, you can actually start a tax consulting business instead of working as an employee in an establishment. Working as a tax consultant will afford you the opportunity of providing tax preparation services to various clients, both individuals and businesses respectively. This will not only increase your income earning potential, you will enjoy freedom which 9-5 job may not allow you to enjoy. Nonetheless, you should be able to source for clients who will require the tax preparation services that you intend to offer. If you know that getting clients will not be a challenge, then let me take you through how you can start your own tax consulting firm.
The starting point is that you need to get certification. The type of certification you need to obtain varies from country to country. It depends on how tax preparation services are being regulated in your country. In some countries, you don’t need to be a CPA or a graduate of accounting before you can offer tax preparation services. All that is required is for you to enrol for specialised course focusing on tax laws and how taxes can be prepared and remitted to tax regulatory authority. But in certain countries, you need to belong to a professional body governing tax matters in the country before you can practice taxation.
Certification is not a substitute to experience. Taxation is practical. If you don’t have opportunity to practice what you have learnt during your course of study, you can’t claim to be a tax consultant. People will hire you for tax preparation services not because of your certificate. They will hire you because they believe that you have the skills and experience to handle tax matters. Tax preparation services are not limited to filing of taxes on behalf of your clients. You should be able to handle difficult situations where you need to defend your clients by appealing judgement from tax authority. In some countries, you need minimum of thirty six months working experience in a tax consulting firm before you can be issued a practising licence. It is after you must have obtained the practising license that you can be allowed to provide tax preparation services.
Register your business
You need to register your tax consulting firm. In most cases, tax consulting firms are registered as an enterprise. This makes the registration process to be simple and easy for individuals to handle by themselves. As a firm that will be providing tax preparation services, you are expected to lay a good example. Therefore, you need to register your firm with the Inland Revenue Service so that you can obtain Tax Identification Number (TIN) for the firm.
Read Also: Why You Must Register Your Small Business
Open your business
Now you are set to start your tax preparation services. One good thing about this business is that it can be operated from home. You don’t need an office but you can decide to have one if you have the resources to do so. In most cases you are the one to go to your clients. The main equipment you need is your laptop, printer and mobile phone. If you can invest in tax software, this will make things easy for you. Meanwhile, you can’t just buy any tax software. You should buy software that is or can be configured to suit your local tax legislation.
Types of Tax Preparation Services
Personal Income Tax: Anyone that earns income is expected to pay tax based on the applicable personal income tax rates. Essentially, you will help your clients compute the tax payable on their income having deducted all the allowable expenses, reliefs and allowances. Both individuals and businesses require the service of a tax consultant in this area. If any business engages an employees, the responsibility for the deduction of personal income tax rests on the employer. For companies that has competent accountant, this can be handled in-house. But most of the small businesses will like to outsource this function.
Value Added Tax: This is a consumption tax. Each company is expected to add a certain per cent to their billing as Value Added Tax. Tax regulatory authority expects that every individual and organisation should remit VAT collected in a given month latest in the following month. Companies will require the guidance of a tax consultant for them to know the VAT payable for each month as they have to deduct the VAT input first before making the remittance. This is a monthly routine.
Withholding Tax: Withholding tax may not be a tax per se. It is a company income tax paid in advance. It is in two ways. Companies will have to deduct withholding tax from their suppliers’ invoices and remit to Inland Revenue Service. Inland Revenue Service in return will issue receipts in the name of the suppliers. The company that made the deduction is expected to pass the receipts to various suppliers whose monies were deducted. In the same manner, when a company sends out invoices to its customers, the customers withhold certain per cent as applicable and remit to the tax authority. Since this is a company income tax paid in advance, the company has to ensure that it collects the withholding tax receipts from its customers. This will serve as a tax credit to offset the company tax payable. All these processes can be time consuming. That is why companies usually hire a consultant that is good at tax preparation services to handle these routine exercises.
Company Income Tax. When it comes to company income tax preparation, a tax consultant will tell you that accounting profit is different from taxable profit. It takes someone that has the good knowledge of taxation to be able to distinguish between accounting profit and taxable profit. Companies can decide to handle other taxes discussed above in-house. But a tax consultant is usually engaged for the preparation of company income tax. It is an integral part of the mandatory end of the year audit. Therefore, it will be good if you can add this to your tax preparation services.
SWOT Analysis of Tax Consulting Firm
The SWOT Analysis below shows the likely strengths, weaknesses, opportunity and threats of a typical tax consulting firm. You can tailor your own SWOT Analysis towards it. Select the ones that is applicable and remove those ones that are not relevant to your situation. You can also additional points to your own as you are in better position to understand your circumstances:
Read Also:SWOT Analysis and How To Use it
Certification: Possession of required certification will give you confidence to start your own tax preparation services. You may not know the value of this certification until you come across someone who sees tax preparation services as a good business opportunity but lacks certification to start the business. Even if you don’t have money to start your business, with the certification, you can easily approach investors for funds.
Skills and experience: You may not have money to spend on marketing. If you have good skills and experience and you are able to handle your clients’ tax matters satisfactorily, they will be the ones to do the marketing for you. They will refer other clients to you.
Networking and marketing skills: You should be able to network among business owners at workshops and seminars. Networking is not hard marketing. It is about building and establishing relationship. When it comes to tax preparation services, people tend to give jobs to those who they can trust. That is why networking to establish relationship is very key. Your business card should always be readily available with you. A brief description of your business on your card will be helpful.
Membership of clubs and other social groups: If you belong to clubs and other social groups, these are places where you can interact in informal ways. During the course of discussion, you can stumble into business opportunities you never expected. The best way to make best of such groups is to let people know you by your profession.
Tax column in popular newspapers or magazine. The best way to establish your authority in tax preparation services is to have a column in widely read newspaper or magazine where you can share knowledge on tax matters. Through this medium, you will get business opportunities from people you never knew or had previous physical interaction with.
Website/Blog: Do you want to take your tax preparation services to the next level? A tax consulting firm with a website and perhaps a blog where you can write about current tax development can easily secure businesses from foreign companies that want to establish a branch in your country. If you blog very well, you will enjoy free organic traffics to your website. This is a free marketing.
Your weaknesses are those strengths that your competitors have which you are lacking. On the other hands, they are virtues that you know that can help you in your tax consulting firm but you are lacking. Look at the points discussed as strengths above and work on those areas you need improvement.
Regulation of tax practice: Tax practice is regulated. Therefore, it is not all comers’ affairs. One can invest in such a business because of the entry barrier. This restriction will ensure that the market is not saturated within shortest period.
Growing number of small businesses: We have quite a large number of small businesses everywhere than before. Unemployment has forced some people to venture into entrepreneurship. Since some of these young entrepreneurs are novice when it comes to tax matters, they will require tax preparation services among others.
Enforcement of tax laws: With the dwindling oil revenue, government at all levels are beginning to shift their focus to taxation as a means of generating revenue. At the same time, individuals and businesses are trying to see how they can plan their businesses in such a way that will minimise their tax exposures. This has created business opportunities for tax consultants
Amendment of tax laws: Tax laws are not static. Governments keep changing tax laws to reflect the policies they want to pursue. A change in tax laws requires interpretations from tax experts to ensure complian
Big firms: For a tax consulting firm that is just starting, nobody knows about you. There are big firms that have already become the household names when it comes to taxation. Despite the fact that they send trainees and executives to carry out some tax assignments for their clients, many companies still prefer them to small tax firm that is owned and run by a senior partner.
Competition: Among the small tax consulting firms, there are competitions, For someone who is not good at networking and marketing, getting job may be an herculean task.
Audit firms encroaching into taxation: Computation of company income tax is an integral part of the end of the year audit exercise, A lot of companies allow their auditors to perform the two roles together. This means that the jobs that suppose to be carried out by tax consultants are being hijacked by auditors.
New technology: The use of tax software, payroll software and other accounting software have made the computation of personal income tax and value added tax easy. with the software, individuals and small businesses can prepare their taxes and make remittance to the relevant tax authority. With time, tax preparation services may not be in high demand any more.