Tax Preparation Prices and Fees
What's a reasonable price to pay for preparing tax returns?
Tax professionals have a variety of ways they use to set prices for preparing tax returns, so it can be a little like comparing apples to oranges when you're looking for the best deal. As a general rule, prices increase as your financial situation and your tax return become more complex.
Pricing Methods Used By Tax Preparers
If you're comparing different tax professionals or accountants, you can ask up front how the firm determines its prices. You can also ask for an estimate of what their services might cost you, but you probably won't get an answer, at least not until you've met with the professional to go over your tax issues. Some accountants do offer free consultations.
Without having first met with you, however, the firm would have to base its number on your summary of your situation, which may or may not provide an accurate picture. After all, you probably wouldn't be seeking a professional's services if you were exceptionally savvy about tax matters.
Some of the methods used by tax professionals to set prices 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
- A set fee for each item of data entry
Average Tax Preparation Fees
According to a 2019 survey, the National Society of Accountants says that you should expect to pay an average of $294 if you want to itemize your deductions on your tax return. Before you gulp, you can take some comfort in knowing that this generally includes both your state and federal returns. The average fee drops to $188 if you don't itemize, which tells you something about how complicated and time-consuming itemizing your deductions can be.
Be prepared to pay more if you show up for your appointment with receipts stuffed haphazardly in a cardboard box, or if you're missing one or more important tax documents like that 1099 you received for interest income you earned during the year.
If your tax situation isn't very complicated, you can save considerably by purchasing tax preparation software instead. These programs have evolved considerably over the years and are set up to ask you specific questions then prepare your return based on your answers and data you input. Prices start as low as $29.95 for the H&R Block basic tax software and $49.99 for a basic TurboTax programs for 2020 returns (and there could be steeper discounts during tax season). There may be an extra cost for preparing state returns.
If your tax situation is very simple and basic, you can almost certainly have your return prepared and filed for free, subject to some income limits. IRS Free File can guide you to what's available.
What Does the Tax Preparation Fee Include?
If you decide to use a professional, be sure to ask him what's included in his fee. Does he charge extra for electronic filing, or for phone calls and office visits? Some firms, especially franchise chains like H&R Block, charge an extra fee for audit protection. You're basically prepaying for any costs you'd incur if the Internal Revenue Service decides to shine a spotlight on your tax return.
Find out what's included with your initial fee if your return is audited, and what happens if the mistakes called into question were made by the preparer and were no fault of your own.
How to Negotiate a Fair Price
If you are searching for the lowest price, 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 might even charge higher prices during their busiest days, like the weeks just after W-2 forms are mailed out or just before the April tax filing deadline. You may be able to obtain a lower price quote during a less hectic time of the tax season.
Inappropriate Pricing Methods
Some pricing models that are illegal and prohibited by the Treasury Department. As a general rule, tax professionals are prohibited from charging "an unconscionable fee" for providing tax services or from charging a fee that's based on information that's contained in your 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.
Be wary of a fee that seems much higher than average. Exorbitant fees can be an early indication 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 price of tax preparation service. Treasury Department regulations protect you in fee disputes. You're entitled to receive your original tax documents back from the accountant even if you haven't paid the fee.
By the same token, accountants can keep any forms, schedules, and documents that they've prepared—they don't have to turn these over to you without compensation.
National Association of Tax Preparers. "2018 Tax Professional Fee Study," Pages 10-17. Accessed Jan. 11, 2020.
National Society of Accountants. "2018-2019 Income and Fees Survey." Accessed Jan. 22, 2020.
TurboTax. "Compare TurboTax Desktop Products." Accessed Jan. 11, 2020.
H&R Block. "Tax Software." Accessed Jan. 11, 2020.
IRS. "Free File: Do Your Federal Taxes for Free." Accessed Jan. 11, 2020.
H&R Block. "Peace of Mind Tax Audit-Protection." Accessed Jan. 11, 2020.
Cornell Law School Legal Information Institute. "31 CFR § 10.27 - Fees." Accessed Jan. 11, 2020.
Cornell Law School Legal Information Institute. "31 CFR § 10.28 - Return of Client's Records." Accessed Jan. 11, 2020.