Tax professionals set prices for preparing tax returns in a variety of ways, 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. Those with extremely simple returns and modest incomes can often get the job done free of charge.
Pricing Methods Used by Tax Preparers
If you're working with a tax professional or accountant, you can ask up front how the firm determines its prices. Ask for an estimate of what their services might cost you, although you probably won't get an answer—at least not a firm, definitive one—until you've met with the professional and they have a better picture of your tax situation.
Some accountants offer free consultations, so you might get an answer at the end of an initial meeting.
Otherwise, the firm would have to base its number on your personal summary of your situation, and this might or might not provide an accurate picture of your tax situation. 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
- Fee based on the complexity of the client's situation
- An hourly rate for time spent preparing the tax return and accompanying forms and schedules
- Additional fees for services such as expediting returns, filing for extension, or responses to IRS audits.
Average Tax Preparation Fees
According to a National Society of Accountants survey, in 2020 on average, you would have paid $323 if you itemized 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 dropped to $220 if you didn't itemize, which tells you something about how complicated and time-consuming the process of 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 Form 1099 you received for interest income you earned during the year.
To Itemize or Not to Itemize?
You might not have to torture yourself over the decision between itemizing and claiming the standard deduction. The Tax Cuts and Jobs Act (TCJA) effectively doubled the standard deduction for all filing statuses (single, married filing separately, married filing jointly, or head of household) when it went into effect in 2018.
For the 2021 tax year, or the return you'll file in 2022, if you're married and filing a joint tax return, you need more than $25,100 in itemized deductions to make itemizing worthwhile (rising to $25,900 in tax year 2022).
The standard deductions for other filing statuses in tax year 2021 are $12,550 if you're single or if you're married and filing separately (rising to $12,950 in tax year 2022), and $18,800 if you qualify as head of household (rising to $19,400 in tax year 2022).
What Does the Tax Preparation Fee Include?
Be sure to ask what's included in the fee if you decide to use a professional. Do they charge extra for electronic filing, or for each phone call and office visit? 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 were made by the preparer and were no fault of your own.
How to Negotiate a Fair Price
Call various tax preparation firms and get a feel for their price ranges if you're searching for the lowest price. 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 charge additional fees during their busiest days, like the weeks right after W-2 forms are mailed out or just before the April tax filing deadline. You might be able to obtain a lower price quote during a less hectic time of the tax season.
Inappropriate Pricing Methods
Some pricing models are illegal and prohibited by the U.S. 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 for tax preparations are a definite red flag to watch out for.
The IRS and U.S. Department of Justice have issued warnings about unscrupulous tax preparers taking inappropriate deductions and tax credits and charging large fees to their clients. Select a tax preparer only after doing proper diligence. The IRS offers resources to learn how to choose a tax preparer and how to check their credentials. Once you decide to go with a tax preparer, be sure to ask them how the fees were determined if your invoice is much higher than you anticipated.
What to Do in the Event of Dispute
Inevitably, clients and tax accountants might disagree over the appropriate price of tax preparation services. 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.
Accountants can keep any forms, schedules, and documents that they've prepared—they don't have to turn these over to you without compensation.
You Have Other Options
You can save considerably by purchasing tax preparation software instead if your tax situation isn't very complicated. 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 the data you input.
For example, as of January 2022, prices start as low as $19.95 for the H&R Block basic tax software. You can file a simple tax return for free with TurboTax, but any returns looking to maximize deductions would require its programs starting $39. There might be an extra cost for preparing state returns, however.
You can have your return prepared and filed for free through IRS Free File if your tax situation is very simple and basic, subject to some income limits. For the taxes you file in 2022, you will not be eligible for the Free File program if you made more than $73,000 in income in 2021, and some of the participating providers' limits are even less than this. The Free File website can guide you to what's available.
The IRS Volunteer Income Tax Assistance Program also provides free tax preparation for low-income taxpayers, as well as for the elderly, disabled, Native Americans, rural citizens, and those for whom English is a second language. There were more than 7,350 volunteer program sites across the U.S. as of March 2021.
Frequently Asked Questions (FAQs)
How much does tax preparation cost?
How much you pay for tax preparation will depend on several factors, including how complex your financial situation is, what type of preparer you choose to work with, and where you live (in regard to state taxes). Generally, the more complex your tax situation, the more you will pay. As for preparers, you may choose to work with a certified public accountant (CPA), attorney, or enrolled agent, which will change the cost.
Can I deduct tax preparation fees on my taxes?
Under the Tax Cuts and Jobs Act, tax preparation fees are considered a miscellaneous expense and no longer deductible. Self-employed individuals, however, can still deduct tax preparation fees.
What do I bring to an accountant for tax preparation?
In order to ensure that your taxes are done properly, it's important to bring all necessary documentation for income and deductions. Be sure you bring your most recent tax return, all W-2s, 1099s, and other income documents, as well as real estate documents and receipts to prove deductible expenses.