A taxpayer's guide to tax-prep fees
About 50 percent of all tax filers pay a pro to prepare and file their tax returns. Even IRS Commissioner John Koskinen is in that boat. He has said he hires an accounting firm and pays a few thousand dollars to get his taxes done.
If you’re among this group, especially if it’s for the first time, how do you know how much should it cost?
Most tax preparers base their charges on the complexity of your tax situation and the completeness of your information. In fact, many say they’ll charge extra when a client is poorly organized and has incomplete records of their income and deductions.
Preparers can also charge in a variety of ways, such as a set fee for each form and schedule required or an hourly rate for the time spent preparing your return. That hourly rate can be based on the actual time they spend on your returns or on IRS guidelines for estimated times to complete certain forms.
Regardless of how you’re charged, it’s always best to provide the tax pro all of your information for review and ask for a firm estimate of the cost before you agree to go forward. This is especially needed if it’s the first time you’re working with this person.
How can you know what you’re paying (or being quoted) compared to what others are being charged?
Here’s some good information. The National Society of Accountants asks its members about the fees they charge, and according to its 2016-2017 fee survey, the average fee to prepare and file a simple Form 1040 (with no itemized deductions) and a state tax return is $176. Add a Schedule A (itemized deductions) to that mix and the fee is $273.
The average fee for a Form 1040, Schedule A (itemized deductions), a Schedule C (profit or loss from business) and a state tax return is $457.
The survey also covered fees for several other forms such as:
- 1040 and Schedule C: $184
- Schedule D (capital gains and losses): $124
- Schedule E (supplemental income, typically from rental real estate): $135
The survey found that fees vary by region, with higher charges in more metropolitan areas. For example, a 1040, Schedule A and state return is about $333 in New England and $329 in states on the West Coast. In Alabama, Kentucky and Mississippi, they averaged about $210.
The survey proved that being well organized and having complete information can save you money. Nearly three-quarters of the preparers said they charge an additional fee averaging $117 for clients with disorganized or incomplete information.
When you hire a tax professional, also ask what the policy is for responding to an audit. The average fee for preparing a reply to an IRS letter or notification (commonly called a correspondence audit) is $128. The average hourly fee for representing a taxpayer at an IRS in-person, or field, audit is $150.
Tax prep pros can also offer other services. They can inform you of the tax-saving strategies unique to your situation or profession. They can help you organize and plan for next year’s taxes by suggesting what records to keep and what financial moves to make this year. They can also help with estimating quarterly tax payments.
The bottom line: Make sure the preparer you chose to work with offers services that meet your needs.