Seasonal Income - Tax Earning Potential
The Joys and Challenges of Seasonal Tax Preparer Work
If you are looking to start a new career, you are probably—and certainly should be—evaluating a number of different options. Unless you know exactly what you want to do next, it's usually best to check out a few different things. One of these fields may be tax and/or accounting.
Now, when getting into the field of accounting on the "tax side," as they say—as opposed to the auditing/corporate consulting side of the accounting ledger—it is natural to consider starting work as a seasonal tax preparer.
What better experience could there be, for someone who wants to understand how taxes and accounting work in the U.S., than to actually prepare U.S. tax returns?
But quickly after this "Should I do taxes?" question is posed, a flurry of less pleasant questions may erupt:
"How much money can I really expect to make working as a seasonal tax preparer? Is that really a new career possibility? Can I really support myself and/or my family with only a seasonal income?"
These questions show one of the best, and also one of the worst, parts of being a seasonal tax preparer: you only work consistently for about four months of the year. If you're thinking about becoming a tax preparer, you need to realize the seasonal nature of the tax business and you need to honestly evaluate whether or not seasonal work will work for you.
In this article, we'll share some of our thoughts on why seasonal work as a tax preparer can be both difficult and excellent.
Be Realistic about Your New Tax Preparation Career
The first advice we'd give you, if you're asking yourself these kinds of questions—and we would encourage you to ask questions before purchasing Pronto Tax Class—is to look at the situation realistically.
Unless you're doing something illegal, you are not going to get rich in two or three years preparing tax returns. There is too much competition in the tax preparation industry and only two or three years into a new career, you just aren't good enough at doing taxes to make huge money. There are many other people, EAs, CPAs, tax preparers with 10+ years experience, not to mention the huge brand name companies in this area who spend millions of millions of dollars on marketing…all these people and companies are fighting like rabid dogs for tax preparation business, so you need to be realistic and don't expect to "kill it" before you even properly know what you're doing.
It usually takes at least three years for a new tax preparer to approach a level of "mastery" that will command high fees.
However, the good news would be that once you do achieve a decent level of mastery over the tax game, you absolutely can transition from being a seasonal tax preparer to working year-round. Top-notch tax professionals, contrary to popular belief, can and often do work and earn money all year-round. In particular, business-owning tax clients have tax obligations all year that their tax preparers help with (and are paid accordingly).
That being said, you have to start somewhere and chances are you will start as a seasonal tax preparer.
Seasonal Tax Preparer Earning Potential
In our experience, an above-average (but not necessarily excellent) first year tax preparer, working full-time during tax season, can hope to make about $7,000-$10,000 in the first tax season, $10,000-$15,000 in the second tax season, and $12,000-$20,000 in the third tax season. While tax earning will vary based upon a number of factors, we can use those as benchmark figures.
That's as an employee of an established and busy tax office, remember, and working an average of 40 hours per week January 15-April 15. If you work more hours, if you are the guy/girl who comes early and stays late, you may make more money because you'll pick up those early/late clients.
But let's say for the sake of argument that an above-average-but-not-necessarily-excellent, full-time first year tax preparer can expect to make $7,000-$12,000 during that first tax season; those are perfectly reasonable benchmark figures to use for a first year full-time seasonal tax preparer.
If your state allows tax preparers to receive unemployment insurance in the off-season, as does California (in most cases, we are not guaranteeing you anything, etc.), you may pick up another $5,000-$10,000 or so of unemployment income when it's not tax season, depending on your tax season earnings. This is a little known "bonus" to being a seasonal tax preparer is that you can (in most cases, we are not guaranteeing you anything, etc.) get unemployment during the off season, so long as you work for an employer who pays the rightful amount into the unemployment fund (another great question to ask during a tax preparer job interview).
So let's say you make, between tax season and unemployment, $15,000 for that first year as a seasonal tax preparer.
Can you make it on that, until you learn your craft?
You may have to make it on that, so if you know you can't make it on that, you might as well know that before you get started. This way, armed with this knowledge, if you do decide to go forward and become a tax pro, you can set up your life and your budget accordingly, to make it from one tax season to the next.
Those first couple years can be pretty lean and you need to be honest with yourself about whether or not you have the discipline to endure those first couple lean years.
The Undeniable Upsides of Seasonal Work
You may be sitting there going, "Wow, $15,000 per year, that's nothing, I would never make it on that!"
And it's true that many people will not be able to "tough out" those first couple years as a newbie tax preparer. Many people will not be able to budget correctly and will end up completely broke in late July, having to take the first 9-5 job that comes their way and unable to work the following tax season.
However, for those of us who do persevere and move from the apprenticeship stage towards mastery of the tax preparation craft, the monetary and lifestyle rewards of seasonal work can be considerable. Pay for tax preparers is discussed more extensively in our "How Much Money Do Tax Preparers Make?" Page, so for the purposes of this article, we'll just examine how obtaining higher pay due to your higher skill level relates to this idea of tax work being seasonal in nature.
This is the whole "How would you like to work only four months out of the year?" argument for becoming a tax pro.
The answer to that question, of course, depends on how much money you make during those four months of work. If you're making $7,000 per tax season, well then unless you have another source of income or little to no financial obligations, you're likely to enjoy not working the rest of the year approximately as much as you'd like eating Alpo for dinner. But if you're making $100,000 during tax season, or you have a spouse that earns good money or some other reason why seasonal work is OK with you (trust fund, anyone?), well then sure, you love only working four months out of the year! Who wouldn't, right?
In order to make $100,000 per tax season or more, you are either going to need to work for a great company that has a ton of work, or you're going to need to start your own tax preparation company and have people working under you. To work at a company and make that kind of money, you will need to advance your education, for instance becoming an Enrolled Agent or a Certified Public Accountant (CPA), or you will need to be an incredible "taximal" that does like 2,000 tax returns per season.
If you start your own tax business, you will make that kind of money based purely upon your ability to attract and retain clients, which is not an easy task but is also doable if you have the right skills and mentality.
We have known many tax professionals who have ascended to this higher realm of earning, and we can tell you that these individuals certainly do enjoy the upsides of seasonal work. Think about all the other things you could do with your time if you weren't working a 9-5 job all year round:
Spend more time with family
Work with charities
Go back to school
Take up a hobby or two or three
Read more books
Whatever you decide to do with your time, the point is that, as of April 15th, you are pretty much free to do what you want. Yes, you may still have to service any clients who have year-round needs, such as business clients who pay quarterly taxes or use you for bookkeeping, but by and large, as of April 15th, your work as a tax preparer is done and you are more or less "free to go."
Once you are making good money during tax season, then, the fact that tax preparation work is seasonal can go from being a bad thing to a great thing. For many tax pros, in fact, the seasonal nature of tax preparation is the best thing about this job. Retired or semi-retired people, students, and stay-at-home moms or dads, for example, may particularly enjoy the seasonal aspect of tax work because it can allow them to have the kind of lifestyle they want, while still bringing in good income for part of the year.
What Are Your Other Options, and Where Do You Ultimately Want to End Up?
Life, especially when it comes to your career, is all about making choices. Choosing between one opportunity or another, and the opportunities that are available to one person may not be available to another person, or the cost to follow a career path may be prohibitively high.
In short, when thinking about whether or not you can handle the seasonal nature of tax preparation work, you have to compare it to your other options.
If you don't have much money or education, becoming a professional tax preparer is probably more appealing than if you have a million dollars in the bank and an M.B.A. from Harvard.
So many other career options, you need to take 2-4 years of schooling, take out a massive student loan, and dedicate yourself for years upon years to getting this new career started. Whereas with becoming a paid tax preparer, all you need is a 60-Hour Pronto Tax Class, buy a tax preparer bond for $50, register with the Internal Revenue Service and register with the California Tax Education Council (CTEC), and then bam, you are ready to start a new career in a field where a lot of people make damn good money, especially relative to the number of hours worked.
Note: tax preparers are now also required to complete continuing education tax preparer requirements each year, and to pass an "IRS Competency Exam" by the end of 2013. These new requirements do add some cost to being a tax preparer. Still, these costs and obligations are extremely minimal when compared to other career training options.
Especially important, in our view, is the low initial investment of becoming a paid tax preparer. In what other potentially lucrative new career can you get all the education you need to get started for only $177?
Compare that to other school and job training options, such as trucking school, cosmetology school, or law school, and you will notice that the initial investments required by these other new careers are substantially greater.
But the earning potential of most of these other careers is not at all greater than the earning potential of becoming a paid professional tax preparer.
Furthermore, you may want to consider whether or not becoming a paid tax preparer can be a "stepping stone" to other, even higher-paying opportunities. If you have some ultimate goal that you want to reach, becoming a paid tax preparer may help you get there. For example, if you want to become a CPA or a financial advisor, it can't hurt to work a few years as an "in-the-trenches" tax preparer. Tax knowledge is also valuable in the fields of real estate and even law.
In fact, we can't think of one finance-related field that does not have anything to do with taxes; so you may find that your years as a paid tax preparer pay off in a later career in ways that you are not aware of now.
Here at Pronto Income Tax of California, Inc., we have had several smart and ambitious tax preparers over the years who have used the seasonal nature of the tax business to pursue education that enables them to qualify for some of these higher-paying professions.
Anyways, we've talked enough and made our point: tax preparation is (when you're just starting out, at least) a seasonal business, and like any seasonal business it has its challenges but that also has its good points.
We wish you the best of luck in your career search and we thank you for considering Pronto Tax Class to become a paid professional tax preparer. Hopefully this article has been helpful to you as you explore your career options. And we'd urge you to consider one last thing about taking Pronto Tax Class:
GETTING SMARTER ABOUT MONEY AND TAXES IS ALWAYS A PROFITABLE THING IN THE LONG RUN, AND IT IS GUARANTEED IF YOU TAKE PRONTO TAX CLASS THAT YOU WILL GET SMARTER ABOUT MONEY AND TAXES, THAT IS A FACT.