Which permits a tax preparation business needs before opening

What to take away

The federal credentials: an EFIN and a PTIN

The IRS runs the federal side of this list. It splits the firm from the people in it. An Electronic Filing Identification Number, or EFIN, belongs to the business. A Preparer Tax Identification Number, or PTIN, belongs to each preparer and to anyone who substantially assists with a return for pay.

A sole proprietor needs both, and the two are not interchangeable.

The PTIN requirements page states the rule plainly: anyone who prepares or substantially assists with a federal tax return for compensation generally needs a valid, current PTIN. Renew it annually through your IRS Tax Pro Account; the fee is typically under $40. Let it lapse and you cannot sign a return, which means you cannot bill for one.

An EFIN is what lets the firm transmit returns electronically. Apply free through the IRS e-Services process, and expect a suitability check on the principals. The IRS also fingerprints new applicants. You cannot e-file a single return without it, and paper filing at volume is not a business model.

Separately, get an Employer Identification Number from the IRS. It is free on Form SS-4, and banks, payroll processors, and state registries ask for it alongside the EFIN.

State preparer registration: California, Oregon, New York

Most states require paid preparers to register with the state tax authority. A handful add a competency exam or continuing education hours on top.

California is the strictest common example. Preparers who are not CPAs, attorneys, or enrolled agents register with the California Tax Education Council, known as CTEC. CTEC requires 60 hours of qualifying education, a $5,000 surety bond, and 20 hours of continuing education each year.

Oregon licenses preparers through the Board of Tax Practitioners, which requires an exam before you can charge for a return. New York requires paid preparers to register with the Tax Department. Connecticut and Maryland run their own registration rules, so check the state you file in.

California and Illinois both mandate e-filing above set volume thresholds, so a paper-based workflow fails there regardless of your federal credentials. Ask your state board for the current number.

Registration is separate from your business entity filing. Forming an LLC with the secretary of state does not register you as a preparer, and registering as a preparer does not license the business. Treat them as two applications with two timelines. In California, the LLC alone costs a $70 filing fee plus an $800 annual minimum franchise tax.

Some states also require a surety bond before they will register a preparer who takes payment up front. California's CTEC bond is $5,000; other states set their own amounts. Check your state's preparer registration page rather than assuming your neighbor's state matches yours.

The permits that are not about tax at all

A general business license from your city or county is the baseline. Almost every jurisdiction issues one, and the annual fee is usually modest: often $50 to $500, depending on the city, the staff count, and the square footage. It has nothing to do with tax, and you still need it.

A sales tax permit matters if your state taxes tax-preparation services. Most do not. A few, Hawaii and New Mexico among them, tax services broadly enough to reach preparation, so a shop there needs the permit. Check with your state department of revenue before you assume you are exempt.

If you take walk-in clients at a storefront, your local building or zoning office may require a certificate of occupancy for the space. The inspection covers exits, restrooms, and parking. It is tied to the address, so a new lease means a new certificate.

If you hire employees, your state labor agency will want a withholding account and an unemployment insurance account. Both are separate registrations from your preparer credential, and both need a federal EIN first.

Due diligence is a duty, not a form

Covered preparers must ask reasonable follow-up questions, evaluate inconsistent or incomplete information, and keep records of what they asked and what they concluded. The due diligence requirements page sets out the standard for returns claiming the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit.

Software does not discharge this. The preparer signs, and the preparer answers for the questions asked. Build the follow-up prompts into your intake form so the record exists before the client leaves the chair.

Data security and accessibility

The IRS requires every preparer to have a written information security plan. IRS Publication 4557 is the template, and the plan is not something you file. It is a standing requirement the IRS can check. Name who holds the plan, what it covers, and when you review it.

If your office is open to the public, the Justice Department's ADA guide for small businesses explains barrier removal, accessible routes, and service practices for existing facilities. Read it before you sign a lease, not after.

A worked example: the first-return checklist

Common questions

Does my CPA license cover the whole business?

No. A CPA, attorney, or enrolled agent credential sits with the individual and governs representation rights. The EFIN sits with the firm, and state registration sits with each preparer. One approval does not carry the others.

Can I start filing returns while my state registration is pending?

Do not. File only after every credential is active, because a return filed under a lapsed or missing registration creates a problem you cannot fix retroactively. Confirm your status with your state tax authority before the first transmission.

What happens if a PTIN lapses mid-season?

You cannot sign a return until it is renewed, and unsigned returns do not go out. Renewal is annual through the IRS Tax Pro Account. Put the date on a calendar with a named owner.

Is the information security plan actually enforced?

The IRS requires a written plan, and it is part of the standards a preparer is measured against. Whether it is reviewed in a given year is not something you can predict. Treat the plan as a standing obligation rather than a filing.