If you have noticed tax preparation fees going up, you are not alone. According to the National Association of Tax Professionals' most recent bi-annual Tax Professional Fee Survey, prices for new clients increased by an average of 25%, while fees for existing clients rose by 22.7% between 2021 and 2023.
Several factors are driving these increases, reflecting significant changes in the tax world. Here’s a straightforward explanation of what’s happening.
1. General Inflation
Inflation has been running between 6-9% annually since 2021, driving up costs for rent, utilities, salaries, and supplies. Tax preparers, like all businesses, are feeling the effects. To account for these increases, fees have had to rise.
In South Florida, where our office is located, inflation has been even higher than the national average, driven by surging housing costs and other regional expenses. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for the Miami-Fort Lauderdale-West Palm Beach area increased 27.7% from October 2020 to October 2024. This means that a $500 tax preparation fee in 2020 would need to increase to about $640 today to maintain the same value.
2. Severe Shortage of Accountants
The United States is facing a significant shortage of accountants, and the issue has garnered extensive media attention:
- "Why No One’s Going Into Accounting" (Wall Street Journal, October 2023)
- "The Accountant Shortage Is Showing Up in Financial Statements" (Wall Street Journal, May 2023)
- "Accountants Are Turning Away Work—Hurting Firms and Small Businesses" (Forbes, December 2023)
- "The Accounting Profession Is in Crisis" (The CPA Journal, December 2023)
- "US Companies Turn to Global Talent Pool as Accountant Shortage Hits" (Yahoo Finance, September 2024)
- "Why the Accounting Pipeline Shortage is Getting Worse" (New York State Society of CPAs, November 2024)
Key data highlights include:
- Fewer Graduates: Bachelor’s degrees in accounting dropped by 7.8% in the 2021–22 academic year, with a similar decline in master’s degrees. (Journal of Accountancy)
- Fewer CPA Exam Takers: First-time candidates for the CPA exam have fallen 33% since 2016. (CPA Journal)
- Retirements: Approximately 75% of CPAs are Baby Boomers, with many in or approaching retirement age, creating a significant reduction in the workforce. (Kent State University)
- Overall Workforce Decline: Between 2019 and 2021, 300,000 accountants left their jobs, a 17% drop. (IFAC)
This shortage has left firms struggling to meet demand, increasing fees as competition for limited resources grows.
3. Tax Preparers Are Trimming Their Client Lists
It’s not that tax preparers don’t want the business—there simply isn’t enough time or staff to handle the current demand. A recent survey found that 42% of accounting firms are turning away new clients because they’re at full capacity. (CPA Trendlines Outlook 2024)
To ensure quality service for the clients they do take on, many firms have had to reduce their client lists. While this is a practical necessity, it has also driven up fees as firms prioritize time-intensive cases and manage workloads.
4. Tax Laws Are More Complicated
The tax simplifications introduced by the Tax Cuts and Jobs Act made filing easier for many taxpayers, but others now face more complex situations requiring professional help. Provisions like the Qualified Business Income Deduction (QBID) and other intricate rules have made tax returns more detailed and time-consuming to prepare.
5. The Tax Season Is Getting More Compressed
Critical tax documents, such as 1099-B forms and K-1s, often arrive late in the season—generally in March—further tightening the timeline for preparers. While taxpayers can file for an extension, it doesn’t solve the problem entirely—tax payments are still due by April 15.
This compressed schedule leaves tax preparers scrambling to complete more complicated returns in less time. To manage the workload, many firms hire temporary staff, which adds significant costs for recruiting, training, payroll, equipment and software.
6. More Risk for Tax Preparers
The increased risk faced by tax preparers is directly tied to several of these challenges: limited staff availability, the compressed timeline, and the growing complexity of tax laws. These factors heighten the likelihood of errors, which can lead to costly penalties or audits for both clients and preparers. With tax preparation becoming increasingly high-stakes work, this added accountability further contributes to rising fees.
7. The Cost of Tax Software Keeps Rising
Tax software is an essential tool for preparers, but it’s also expensive. Some small firms spend as much as $50,000 annually on software to serve their clients. These rising costs often end up reflected in client fees.
8. Salaries for Experienced Tax Pros Are Increasing
With fewer accountants in the workforce, competition for experienced tax professionals has driven salaries higher. While this benefits those in the field, it’s another factor contributing to rising costs for clients.
Committed to Our Clients’ Success
At Schanel & Associates, we remain deeply committed to providing high-quality tax services and view the challenges in our industry as opportunities to continually enhance our services. Two years ago, we transitioned to a subscription-based business model focused on year-round advisory relationships, enabling us to deliver more comprehensive support. We’ve also invested in technology and remote staffing to enhance efficiency and meet evolving needs.
We understand that rising tax preparation fees can be frustrating and unexpected. Please know that we are doing everything we can to adapt, innovate, and provide you with exceptional value in an increasingly complex environment. We greatly appreciate your trust and look forward to continuing to serve you.
