Average Tax Prep Fees The Wealthy Accountant

To arrive at these “average” tax preparation fees I used a study from the National Society of Accountants and adjusted for inflation.

The problem with “average” tax preparation fees is that they do not take into account several factors. The experience of the tax professional will affect the fee charged. A CPA with 30 years experience will have higher fees than unlicensed tax practitioners just starting out.

Another issue involves the amount of data requiring entry. A Schedule D with five transactions is different from that of a day trader. One rental property will have a lower fee than having three rental properties even though you still only need one Schedule E. And then there is page two of Schedule E. Having one K-1 entered on page E2 is different from having 60 K-1s.

Complexity also plays a role. If your Schedule E is a basic income property you will probably have a flat base rate fee. If said property has a cost segregation study attached to it you can expect to pay significantly more to match the large deduction you planned for.

Where you are located also plays a role in average tax prep fees. Big cities generally have higher prices for accounting services than small towns. The Midwest generally has lower average tax prep fees than the Northeast or West Coast.

If research is required in preparing your return there is usually a charge for this additional work.

It should be noted that tax preparation fees have been climbing faster than the rate of inflation the past several years due to a large shortage of accountants and other tax professionals. Until the accountant shortage eases, expect tax preparation and other accounting fees to climb.

The Value of a Tax Professional

Finding an accountant is about more than fees. Good accountants can answer tax questions and offer strategies to lower your taxes. Good accountants pay for themselves many times over.

Before discussing fees with a tax professional first determine if you are a good fit. If personalities clash it will not work. Ask the accountant about their level of experience, training, and designations (CPA, EA, attorney, Accredited Tax Advisor, etc.) Inquire into consulting services, especially if you own a business or income property, or are selling an asset.

Tax preparation is mostly entering numbers in the right spot. There is a skill in doing that right and opportunities to lower your tax liability by entering numbers in an optimal way. But consulting is where the real tax savings occur. In consulting you can create better numbers in the right spot, meaning a lower tax bill for you.

Unless your tax return is super easy a seasoned tax professional willing to discuss strategies to lower your taxes is a better deal, even if their fees are higher. A proactive tax professional is worth their weight in gold.

How Much Should I Pay For Tax Preparation?

For most people the answer is in the middle. Unless you have a very complex tax situation the highest cost tax accountants are unnecessary. The low-cost guys are also a bad deal in many cases. They are cheap for a reason.

The best way to approach fees is to start with the chart above on average tax prep fees. Factors unique to your situation will add or subtract from the average fee. More rental properties will have a higher cost. A single rental with only a few expenses might have a lower fee than a property with lots of entries or a unique situation (e.g. a cost segregation study, the purchase or sale of the property, etc.)

Average is not a hard and fast rule. Tax preparation fees within a small community can vary widely. Fees are not the most important factor in hiring an accountant. Cheap can be more expensive in the end.

A high fee does not guarantee quality service. Before you engage a tax professional you need to understand their experience and areas of practice. Only then is it worth the effort to discuss their average tax prep fees.

Beware of ghost preparers that do not sign tax returns or give you a copy of the return they file for you. Any tax preparer that does not fully disclose what they are doing must be avoided! The tax preparer should give you a copy of your return and proof of filing once accepted by the IRS and state filing office.

A preparer must review your tax return with you. It might involve review copies before a final copy is issued or even a sit down conversation where key points of the return are addressed for accuracy and opportunities to lower your tax liability are discussed. Personally, a good tax accountant will provide details about your tax return for the year ahead at the time of review.

How Much Do Tax Preparers Make?

Tax preparation is a high margin business. Payroll, technology, and the facility are the major expenses.

One thing you can be sure of, if the tax office is in an expensive building their fees will be higher just to cover the facility overhead. That makes sense for large CPA firms handling very large accounts. For most people this will be overkill when hiring a tax professional.

Local tax offices are often independently owned. A local tax accountant may offer more personalized service than a large box store or large CPA firm. If you want personalized service the small tax office is the way to go as long as the tax accountant is experienced and pleasant to work with.

From the employee perspective, tax accountants earn an average of:

Of course, many factors determine the pay scale for a tax professional. There are super-cheap tax offices that hire untrained data entry people for under $20 per hour. Best to avoid these low end tax offices as they are data entry people versus tax professionals. The above table is a guide to what a seasonal tax professional can earn per hour.

Tax office owners can earn a considerably higher income. Six-figures is not uncommon. Of course, the stress of running a business comes with the higher income.

Recap of Average Tax Prep Fees

The table above is a guideline only. Fees vary by location and experience. The above table is a starting point. Just remember to adjust for situations specific to your tax return.

Also, don’t forget to pick your tax accountant’s mind. They have a wealth of knowledge in the tax and financial field. They see the big picture as they serve many clients. They see scams early. They review tax law changes all year long. They read and study tax. They are worth talking to if you are interested in keeping more of your money.