Tax Preparer Bond

A tax preparer bond guarantees compliance with all applicable tax laws and regulations. It protects your clients and the government if you fail to fulfill your obligations as a tax preparer. Bonds can also help you build trust and credibility with your clients by showing you’re serious about your responsibilities as a tax preparer.

Types of Tax Preparers

There are several types of tax preparers. Generally, enrolled agents and CPAs do not need to become bonded as part of their licensing process. The IRS holds them accountable. Another type of tax preparer, a non-exempt (or non-credentialed) tax preparer, needs a surety bond to become licensed.

• Enrolled agents are tax professionals authorized to represent taxpayers before the Internal Revenue Service (IRS). They aren’t required to obtain a surety bond.
• Certified public accountants (CPAs) who prepare tax returns for clients don’t need a surety bond to become licensed.
• Non-credentialed or non-exempt tax preparers include those working in private practices or large corporations. They have tax preparation skills but don’t have professional certifications or credentials from an external organization like the IRS. These tax preparers must have a surety bond to practice legally.

It’s important to note that the specific requirements for tax preparer surety bonds may vary by state and the type of tax preparer. If you are unsure whether you need this surety bond, it’s always best to check with the relevant state agency or licensing board.

States

California and Nevada are two states that require tax preparer bonds.

• The California Tax Education Council oversees the licensing process for non-exempt tax preparers and requires a $5,000 tax preparer bond.
• The Nevada Secretary of State’s office requires non-exempt tax preparers to register and become licensed and bonded. Bond penalties range from $25,000 to $200,000, depending on the number of registrants.

The cost of a tax preparer bond can vary based on several factors, including the bond amount, the state where the bond is required, and the applicant’s creditworthiness. Generally, the cost of a tax preparer bond is a percentage of the total amount, ranging from 1% to 15%. 

Some states have minimum bond amounts or may require larger bonds based on the tax preparer’s volume of business. For example, California tax preparers must obtain a $5,000 tax preparer bond. If you need this bond, and your premium rate is 2%, you’d pay $100. The bond must be issued by a surety bond company licensed to do business in California and approved by the California Tax Education Council (CTEC), like ZipBonds.

Follow this general process to become a tax preparer in your state:

• Meet the basic requirements: Most states require tax preparers to be at least 18 years old and have a high school diploma or equivalent.
• Get a Preparer Tax Identification Number (PTIN): A PTIN is required for all paid tax preparers and can be obtained by registering with the IRS.
• Complete a tax preparation course: Many states require tax preparers to complete a certain number of hours of tax preparation education. 
• Gain experience: Consider working for an established tax preparation company or gaining experience as an intern to learn the ropes of tax preparation.
• Obtain any necessary licenses or certifications: Some states require tax preparers to obtain a license or certification before they can legally prepare tax returns.
• Get a tax preparer bond: Some states require tax preparers to obtain a surety bond to protect their clients in case of errors or fraud.
• Register with state agencies: Some states require tax preparers to register with state agencies, such as the California Tax Education Council.
• Stay up to date with tax laws: Tax laws and regulations change frequently, so it’s essential to stay informed and up to date on any changes that may affect your clients. Attend continuing education courses and seminars to stay informed.

It generally takes around 4-6 weeks to become a taxpayer.