The time people spend in complying with federal tax laws translates to about 8.9 billion hours. This explains why they would rather pay tax preparation fees and spend their time in more productive activities. In the same breathe; tax preparation software cost approximately $30 billion annually.
Having a professional compile your tax returns is a sure way of handing in your returns in good time. These professionals determine the tax preparation fees through a variety of ways. As such, it’s up to you to compare several offers before settling for any one company.
As you shop for the services, keep in mind that tax preparation fees increase as your tax returns become more complex.
Keep on reading to learn more!
How Do Tax Professionals Determine Tax Preparation Fees?
Different tax accountants use different pricing methods for tax preparation. When you want to compare their rates, you could ask them how they come up with their fees. Alternatively, you can ask for estimates of their tax services.
While some offer a free consultation, others will only engage you when you’ve presented your tax situation to them. Since your summary may not be very accurate, the estimate may also not be as close to what you’ll end up paying.
Some of the methods tax professionals use in determining tax preparation fees include the following.
1. Setting a Fee for Each Tax Schedule
There’s typically no room to negotiate the tax preparation fees. The fee is usually a flat rate that applies to each schedule or form. For a breakdown on the average cost of filing common forms, check the following out:
- Schedule A and state return costs $273 for Form 1040
- $176 for non-itemized Form 1040 with state return
- $184 for Schedule C, Form 1040 under business class
- $124 for schedule D that covers gains and losses
- $180 for Form F
- $135 for schedule E
With the knowledge of these figures, you can properly plan for your type of form or schedule.
2. Fees Based on What They Charged the Previous Year
Depending on whether you use the same service each year, you’re likely to get a matching rate. Your tax advisor will give you a similar price, as long as your taxes aren’t more complicated than originally planned.
3. Setting a Minimum Tax Preparation Fee
The minimum flat applies for tax calculations that aren’t too complicated. This means that your advisor will probably ask for a little extra if they’ll have to put more hours in.
4. An Hourly Rate for Time Spent in Tax Preparation
If you approach a tax professional who charges by the hour, first find out how much time it’ll take. Also, find out how much they charge by the hour. This will help determine whether you can afford their services or not.
Some professionals have steep hourly tax preparation fees sometimes as much as $400. However, if the work takes less time to complete, you won’t be stuck with a huge bill.
5. Charging a Fee for Every Item of Data Entry
This could end up being quite expensive if you have too many entries to make. It could get worse if the rates for each item are too high.
6. Charging a Value-Based Fee Subjective to the Service
Value-based tax preparation fees could lead to disputes. This is because they’re usually determined abstractly, from feelings. Tax advisors typically take this approach so that they can reap a big chunk from clients who won’t bargain.
Factors That Determine Your Tax Preparation Fees
On average, it’ll cost you $176 for a standard 1040 Form and state return. While this is the average, don’t’ run off with it as yet. This is because several other factors will determine the actual final cost.
Some factors to consider when deciding how much you should spend on filing your tax are:
1. The Qualifications of the Tax Professional
On average, a tax advisor who’s starting will charge less than a high-quality professional one. When it comes to your taxes, the stakes are high. You’d rather spend more and have the right thing done than vice versa.
Although the aim is to pay less for quality services, paying more may be more worthwhile in the end.
2. The Complexity of Your Taxes
How well do you file your financial documents? If the tax professional will have to sort out a pile of a mess, the more you’ll have to pay. Present them with well-organized records, and you stand the chance of getting fair rates.
The other issue is about what your tax details entail. If all you need is just putting the figures where they belong, you can get away with the bare minimum rate. The more complicated the figures and calculations, the more you’ll end up paying.
3. Where You Live
Tax preparation fees differ from one state to another. For example, charges on the Pacific Coast are far less than in the South. Here are the varying rates for the preparation of an itemized 1040 Form with a schedule A and state return.
- $333 in New England
- $290 in Middle Atlantic
- $266 in South Atlantic
- $210 in East South Central
- $271 in West South Central
- $329 in the Pacific
- $214 in West North Central
Take note that these figures are higher than the $176 average mentioned. Tax advisors are usually presented with more than the standard 1040 can cover, hence the extra charges. Plan for slight fluctuations in the prices based on the quality of the advisor.
Negotiating a Fair Price
For you to get fair tax preparation fees, call various firms and gauge their price ranges. The quotes you get will give you a rough idea of what you can expect to pay.
Some firms will charge more during the busiest days of the week. Days just after the W2 forms have been mailed out attract high rates. You can also expect to pay a little more a few days before the April tax filing deadline.
Illegal Pricing Methods
The Treasury Department outlines some inappropriate and prohibited pricing models. The first prohibited model is charging a fee based on your tax return documents. For example, they should not charge a percentage of your tax refund.
The advisors should also not charge a contingent fee except in some exceptional cases. Such circumstances are minimal. There have been cases of fraud in which advisors have taken tax credits and inappropriate deductions from their clients.
Be cautious of fees that seem much higher than the normal average. They could be an indication of fraudulent activities by the advisor. You could ask them how they came to the figure.
How to Dispute Tax Preparation Fees
It’s not uncommon for clients and accountants to have price disputes. Fortunately, the Treasury Department will also mediate in such cases. The department will demand that you get your documents back from the accountant even if you haven’t paid.
On the other hand, the accountant has the right to keep the documents already prepared. These include schedules, forms, and all related documents. If no compensation is made they don’t have an obligation to return them.
If you’re not well informed about the procedure of disputing the fees, a tax attorney can help. Although this could mean an extra cost on your part, your chances of having a refund are high. However, check that what you pay the attorney is not more than the refund you seek.
How to Get a Trustworthy Tax Advisor
When shopping around for a tax advisor, think of it like getting a haircut. It’s possible to get a haircut for a meager price, but it may not be the best. If you want the best set of skills, you’ll probably have to part with a considerable amount of money.
Paying the average $176 for tax preparation will get you an average tax professional. They may not help you get all the deductions you deserve but will give you the essential services. To help you get more than the minimum refund, you’ll need to part with a good amount of money.
A high-quality tax advisor will also help you understand tax changes and your current tax situation.
Filing your tax returns is a time-consuming process, especially if you run a large company. This is where the services of tax preparation firms come in to save the day. Parting with tax preparation fees is better than missing the deadline and facing the tax penalties.
When approaching a tax firm for the services, you need to have an idea about the fees. The national average is $176, but this will change with geographical location and individual services. Some factors to consider when seeking a fair price are professionalism level and your tax situation.
The more complex your returns are, the more the input required to get you more substantial tax breaks. Remember that no matter how good a firm is, there are some pricing models they can’t apply. No matter how much in need you are of the services, don’t agree to be fleeced out of your hard-earned cash.
Are you experiencing any tax issues? Be sure to reach out to us for help.