Tax Preparation Prices and Fees

What's a reasonable price to pay for preparing tax returns?

Title reads: "Tax preparation prices and fees." Text reads: "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 cost for a tax preparer: $294 if you itemize your deductions, $188 if you do not itemize your deductions"

Image by Julie Bang © The Balance 2020

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

You can ask up front how the firm determines its prices if you're comparing tax professionals or accountants. 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 firm grasp of your tax issues.

Some accountants offer free consultations, so you might get an answer at the end of this 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
  • 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 accompanying forms and schedules
  • 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 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 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 1099 form 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.

As of the 2020 tax year—the return you would file in 2021—you'd need more than $24,800 in itemized deductions to make itemizing worthwhile if you're married and you file a joint tax return. You'd be taxed on $4,800 more in income if you itemized and have only $20,000 in itemized deductions. That's not even to mention the additional tax prep fee.

The standard deductions for other filing statuses are $12,400 if you're single or if you're married and filing separately, and $18,650 if you qualify as head of household.

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 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 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 higher prices 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 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. Be sure to ask your accountant 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.

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 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. You can't have more than $69,000 income, 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 are more than 9,600 volunteer program sites across the U.S. as of 2020.

Article Sources

  1. National Association of Tax Preparers. "2019 Tax Professional Fee Study," Pages 10-17. Accessed Oct. 29, 2020.

  2. National Society of Accountants. "2018-2019 Income and Fees Survey." Accessed Oct. 29, 2020.

  3. Tax Policy Center. "How Did the TCJA Change the Standard Deduction and Itemized Deductions?" Accessed Oct. 29, 2020.

  4. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2020." Accessed Oct. 29, 2020.

  5. Cornell Law School Legal Information Institute. "31 CFR § 10.27 - Fees." Accessed Oct. 29, 2020.

  6. Cornell Law School Legal Information Institute. "31 CFR § 10.28 - Return of Client's Records." Accessed Oct. 29, 2020.

  7. IRS. "Free File: Do Your Federal Taxes for Free." Accessed Oct. 29, 2020.

  8. Treasury Inspector General for Tax Administration. "Interim Results of the 2020 Filing Season," Page 16. Accessed Oct. 29, 2020.