By William Perez. Tax Planning: U.S. Expert
William Perez has worked as a tax professional since 2004. He earned the enrolled agent designation by passing a comprehensive examination on federal taxes and maintains his credential by taking continuing education classes.
Tax professionals use a variety of methods for setting prices for tax preparation services. As a result, finding out what's a fair price to pay often proves difficult. Generally, the price for tax preparation services increases depending upon the complexity of the tax return.
Pricing Methods Used by Tax Preparers
Fee structures are decided by each individual firm. So if you are comparing different tax professionals, you'll want to ask how they determine their prices, and what they estimate your tax preparation service might cost.
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Because of per-item, per-form, or per-hourly rates, it might be impractical for an accountant to provide you with an accurate price quote. Accordingly, you'll want to ask accountants for a likely price range for your tax return.
Tax professionals use a variety of different methods to set prices. In a 2010 study conducted by the National Association of Tax Professionals, pricing methods include:
- A set fee for each tax form or schedule,
- A fee based on last year's fee plus an additional fee for any changes in a client's tax situation,
- A minimum tax return fee, plus an additional fee based on the complexity of the client's situation,
- A value-based fee based on the subjective value of the tax preparation service,
- An hourly rate for time spent preparing the tax return, and
- A set fee for each item of data entry.
Average Prices for Tax Preparation Fees
The National Association of Tax Professionals in their 2014 study found that average tax preparation fees ranged from $142 for a Form 1040 personal tax return to $566 for a Form 1120 corporate tax return.
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By contrast, the National Society of Accountants in their 2014-2015 fee study reports the following average prices charged by their members:
- Average for 1040 with Schedule A: $273
- Average for 1040 with no itemized deductions: $159
Average Prices at Franchised Tax Offices
- H&R Block: $147 per return (average, 2014 data)
- Liberty Tax Service: $191 per return (net average fee, 2014 data)
(Jackson Hewitt, also a nation-wide chain, does not disclose their average fees.)
Find Out What's Included in the Tax Preparation Fee
To help you determine if your tax preparation fee is appropriate, be sure to ask the accountant exactly what's included in the fee. Do they charge extra for electronic filing? Do they charge extra if you need a copy of your tax return later in the year? Does the fee include a tax consultation or planning meeting where you can ask questions and received advice on how to minimize your taxes?
Some firms, especially the franchise chains, charge an extra fee for audit protection. This is basically a way to prepay for any costs associated with an audit of your tax return. So you should ask the accountant how they charge in case your return is audited, or if they will correct any mistakes they make free of charge.
Additionally, find out how the accountant will charge if you have any follow-up questions later in the year, or if you need copies of your documents, or need help responding to a letter from the IRS regarding the year(s) that you filed with your tax
How to Negotiate a Fair Price
You are entitled to ask your accountant for a price quote or an estimate in writing, before the tax preparation begins. You can also ask your accountant to let you know, in advance, before the fee exceeds your budgeted amount.
If you are searching for the lowest price, the best thing to do is call various tax preparation firms and get a feel for their price ranges. The business might not be able to give you an exact price quote, but they should be able to quote you either an average price or a price range for your tax situation.
Some firms will charge higher prices during their busiest days. The weeks just after W-2 forms are mailed out, and the weeks just before the April 15th deadline are busiest. You may be able to obtain a lower price quote during a less busy part of the season.
Additionally, it's easier to negotiate prices up front before work has begun on the tax return than after all the work has been completed. If you're on a budget, you may want to negotiate a flat fee for your tax preparation. Be sure to discuss your budget upfront with your accountant to see what they are able to do.
Inappropriate Pricing Methods
While tax accountants employ a variety of pricing mechanisms, there are some pricing models that are illegal and prohibited by regulations issued by the Treasury Department in Circular 230. As a general rule, tax professionals are prohibited from charging "an unconscionable fee" for providing tax services. Further, tax professionals are prohibited from charging a fee that's based on any information contained in the tax return. One common example is a fee that's based on a percentage of your tax refund. Tax preparers are also prohibited from charging contingent fees except in certain limited circumstances.
Additionally, you should be wary of a tax preparation fee that is much higher than normal. Exorbitant fees can be an early indicator that your tax preparer is engaging in fraudulent activities. Several cases of fraud have involved tax preparers taking inappropriate deductions and tax credits and charging large fees to their clients. If your invoice is much higher than you anticipated, be sure to ask your accountant how the fees were determined.
What to Do in the Case of a Price Dispute?
Inevitably, clients and tax accountants may disagree over the appropriate price of a tax preparation service. You should be aware that regulations issued by the Treasury Department protect the client in fee disputes. Client are always entitled to receive their original tax documents back from their accountant, even if the fee hasn't been paid. By the same token, accountants can keep any forms, schedules and documents they have prepared themselves.
- National Association of Tax Professionals, 2010 Fee Study and 2014 Fee Study. both are samples from their full study, in pdf format.
- National Society of Accountants, 2014-2015 Income and Fee Survey Report. Main Street Practitioner. December 2014, page 9, pdf.
- H&R Block, average fees based on data found in their 2014 Annual Report to Shareholders. pdf, downloadable from the company's annual reports page .
- Liberty Tax Service, average fees for 2013, from their 2014 Annual Report to Shareholders. pdf, downloadable from the company's annual reports page .
- Treasury Department, Circular 230. sections 10.27 and 10.28, pdf format.
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