Maybe you’re looking for a new accountant, or maybe you’re fresh out of college and have never had to file a tax return before. While price is an important consideration when choosing a tax advisor, it’s not the only factor that you need to keep in mind.
According to the 2016-2017 survey of members of the National Society of Accountants, the average cost for a 1040 with itemized deductions and a state return was $273. Adding a Schedule C for a home business increased the cost by $184, and a Schedule D to report the gains and losses of investments was an extra $124. For business returns. the average fee for a partnership return was $656, while an S-corp return was $809.
Keep in mind these are averages, and the National Association of Accountants includes a broad range of professionals, including Enrolled Agents, bookkeepers, and accountants without the CPA credential, so your fees may be quite different.
What factors impact tax preparation pricing?
The price you pay is impacted by many factors. Let’s look at a few of them:
Credentials of the Preparer: Here in the U.S., no licensing or training is required for someone to call themselves a tax preparer. In general, when your preparer has more specialized training and professional credentials, you can expect to pay more. At the same time, hiring someone with professional credentials means that they have to adhere to the standards of their licensing organization, which protects you from unscrupulous and fraudulent preparers.
CPA vs. EA: These are the two most common credentials for licensed tax preparers. Both credentials allow a preparer to represent you before the IRS in case of an audit. An Enrolled Agent, or EA, is licensed by the IRS and is trained in tax preparation and administration. A CPA, on the other hand, has a broader business perspective and educational background. A CPA can provide you with a broader range of services and insights that can help your business grow and thrive. Because of the additional training and experience, you may pay more when you work with a CPA.
Schedules: Many of the calculations that determine your tax liability are performed on separate schedules. For example, Schedule A is used to determine your itemized deductions and Schedule C is used to calculate the profit or loss from a small business. A tax return with more schedules will be more expensive than one with fewer schedules.
Complexity: While the number of schedules is a good estimate of the complexity of a tax return, some individuals and business owners have complicated tax situations. When this happens, a substantial amount of research, analysis, and calculation may be needed to come up with the information to be reported on a tax return, which generally means a higher fee.
Condition of Records: Clear, complete and well-organized records make it easy to prepare a tax return. But if your preparer has to sort through a pile of documents or ask for clarification on certain transactions, you should expect to pay more.
Size of Firm: Bigger firms tend to charge higher fees than small, one-person CPA firms. A bigger firm may also give you access to higher level expertise and services.
Location of Firm: The local cost of living also impacts the price you’ll pay for tax preparation. A firm in a high cost urban area such as Miami or New York City will be more expensive than one in a low cost rural area.
Experience Level of the Preparer: As mentioned above, no training is required to prepare taxes for others in the U.S. A barely trained, brand-new preparer at a national chain such as H&R Block will be less expensive than a CPA with decades of experience. But those lower fees may not get you all the tax savings you’re entitled to, and might not help you in case you get audited.
How do firms set their fees?
Firms use a variety of methods to set their fees for tax returns and other work. Here are the most common methods:
Hourly: Under an hourly pricing method, clients are charged fees based on the time required and the experience level of the people who work on their return. The work of a relatively new staff accountant may be billed out at a rate of around $100 per hour, while a CPA partner with a decade or more may charge upwards of $250 per hour.
By the Form: Some firms charge fixed rates according to the forms included in your tax return. Complex returns that require more forms and schedules will cost more than simple returns with fewer forms or schedules.
Fixed Prices: Fixed pricing generally means that a firm has a menu of service options at fixed prices, which in turn may vary depending on the scope of the work.
Value Pricing: With value pricing, the price for a discrete package of services is agreed to up front by the provider and the client. The price agreed to reflects the value to the client that the services provide.
Combination: In practice, many firms use a combination of several of these methods to arrive at a price that fairly compensates the firm for the complexity of the work and the time required, and which also provides the client with a fair price for the services they receive.
Note that CPAs are forbidden from charging contingent fees for tax returns. A contingent fee is a percentage of the refund or tax benefit received by the taxpayer.
How do we at Schanel & Associates set our fees?
At Schanel & Associates, tax returns are billed based on time and complexity. Fees for a personal Form 1040 start at $400, with an average fee of about $750. Fees for Corporate and Partnership return preparation typically range from $950 to $2,500. The fee for a more complex return, either business or personal, would be higher.
Other services are billed either on an hourly basis or on a negotiated fixed fee basis. In all cases, we provide an estimate so there are no surprises. Call our office today for a quote on how much your tax return is likely to cost when we do the work.