What is the real cost of starting a tax business?

If you are considering starting a tax preparation business, there are a few different types of actual costs to consider.  Each type of cost will require sacrifice and planning. The three main types of small business start-up costs to consider are: finances, time, and effort (mental and physical costs). 

To help measure the real financial cost of starting a tax preparation business, start with a draft budget.  In this budget, consider your software cost, office costs, support costs, and marketing expenditure.  The first purchase you might make is tax software for your business. Tax software for tax preparers can range from less than $1,000 to $2,000 and up depending on inclusions and capability.

Another type of financial cost will be your office cost. Unless you are operating from a home office, you will likely have a rent cost per month.  Does your rent include utilities? If not, tack that on as well.  Internet will also be required, so let’s add business internet in at $100 per month.  A newer trend of virtual office spaces may be something to consider while you’re keeping overhead low.

In addition to rent and utilities, your office will probably also need some supplies, pens, paper, printers, computers, etc.  While you can buy refurbished hardware, refurbished printers are not advisable, but refurbished computers would be fine and save you a couple hundred dollars. Even if you plan to have a wireless office, there’s the cost of the signature tablet to consider. Expect that to be a one-time cost of about $150 per tablet. 

One of the most important and yet often neglected costs of starting a tax business is the financial cost of successfully marketing your business. Each dollar you spend on your marketing should be bringing more than one dollar back. You should be seeing a return on your investment.  To be very honest, this should be one of your biggest costs. The old saying is true, it costs money to make money, so give yourself a solid start by sectioning off a couple thousand dollars for your marketing endeavors.  

The cost of your time is a cost that you don’t want to ignore. While you may not be spending money, you will be spending large amounts of time on setting up your office as well as tax preparer training for you and your employees. For those not juggling a family or a current job, this may not be quite as troublesome, but either way, the time cost can be great, especially if you are starting out as a brand new tax preparer.

There are physical and mental cost aspects to starting a business, as well.  While you can decide the hours you work, typically, you will still be working long hours before tax season (for office set up) and during tax season. Tax season can be emotionally and mentally exhausting. After tax season, you might miss the abuse and you might want to focus on getting more clients in as business tends to drop off after April 15^th.  

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Example Cost List

Software & Support: $1,500+

Business insurance: $750-$1,200

Hardware: Printer, Scanner & Computer: $600+

Rent: Variable*

Office supplies: $200/mo. x 4= $800

Office internet: $100/mo. x 12= $1200

Marketing: $2,500+

Total: $7,350+ Office rent/expense*

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Every endeavor will be different but these are some general expenses and costs to think about when starting a tax preparation business. If you have any questions or would like to speak to a representative about how Federal Direct can help with small business start-up costs, give us a call at (866) 357-2052.