Introduction: Tax Preparation Fees | Average Cost of Tax Preparation
Springtime is usually a time of rebirth and renewal. The flowers are coming out, the cold weather is subsiding, and we emerge from our winter hibernation.
If it just weren’t for that dreaded deadline in early April, spring would be the best time of the year.
Preparing your own taxes can be a headache, and many people suffer minor anxiety attacks when it comes to negotiating tax preparation fees.
Nonetheless, if you’ve ever wondered, “How much will my tax return be?” it’s probably because you have a feeling that you’re simply not getting the numbers right on your tax return.
Image Source: Tax Preparation
In this brief article, AdvisoryHQ will let you in on all you need to know about how much accountants charge for tax returns and the average tax preparation fees in 2017.
We have done the research and will fill you in on income tax preparation fees in 2017 by state, and also the tax preparation fees charged for different tax documents.
After reading our cost of tax preparation guide, when spring rolls around next year, you’ll be better able to enjoy the return of good weather because you’ll know exactly how much to budget to cover the fees for tax preparation.
How Much Does It Cost to Get Your Taxes Done?
What are the tax preparation fees in 2017? Without a doubt, this is the question on everyone’s mind.
For those who don’t have the time or the patience to read through pages and pages of IRS forms and instruction booklets, the answers to the following questions may be most important:
Just how much does it cost to get your taxes done? And, more than that, how much will my tax return be?
Benefits of Choosing to Use a Tax Accountant
Many times, we may be scared off by the seemingly high prices of the tax services fees charged by accountants.
However, the truth of the matter is that, many times, the tax service fee that we pay can end up saving us more money through the tax refund received from the federal or state government.
The cost of tax preparation charged by tax accountants is oftentimes a negligible amount because they are experts at getting you the refund you deserve.
The tax preparation fees that you pay may also save you serious money in fines if you are audited in the future and haven’t filled out your tax forms correctly.
Since the IRS is continually adding new tax breaks every year, it can be hard to stay on top of the rules of the game.
As quoted in accountingweb.com, National Society of Accountants president Robert L. Cross says:
“The tax code becomes more complex every year—especially this year with so many new tax credits and other rules as the federal government attempts to provide some taxpayers with relief during the economic downturn.”
With so many new breaks being incorporated by the IRS every year, you shouldn’t be asking yourself, “How much does it cost to get your taxes done?” but rather asking how your income tax preparation fees can actually save you money in the long run.
There are no standard tax return preparation fees that are uniformly charged around the country. This makes it impossible to narrow down a singular average cost of tax preparation.
The actual amount of your income tax preparation fees will be determined by the region where you live, the size of the accounting firm that you hire, and also the complexity of your actual tax return.
According to a National Society of Accountants survey, the average cost for preparing a 1040 (Schedule C) Tax Form is $218.
The same website urges citizens to pay tax preparation fees, because:
“Using a tax preparation service does give you the advantage of having a tax professional point out the various tax credits and tax deductions you are eligible for. Additionally, you may even have the extra benefit of being able to deduct the tax preparation fees themselves.”
If you live in the southern part of the United States, your tax services fees will generally be lower than if you live in the Middle Atlantic or Northeast Region.
The average tax preparation fees in the Southeastern United States was only $137 in 2015 while people who live in the Middle Atlantic region paid more than $250 for their income tax preparation fees.
The West Coast was by far the most expensive place for tax preparation fees, as people there paid close to $300 for their average tax service fee.
Another consideration you’ll need to consider when determining the answer to “How much will my tax return be?” is the size of the accounting firm that will be helping you. Larger firms will generally charge more for tax preparation fees, and smaller firms less for the cost of tax preparation.
One study showed that tax firms with a gross annual income less than $50,000 only charged $175 for their average tax preparation fee.
However, larger firms with annual incomes more than $400,000 charged more than $300 for income tax preparation fees.
Type of Form Filed
Of course, your tax preparation fees will also vary based on what type of forms you will be filing. If you’re simply filing a 1040 Schedule C form, then the national average for tax preparation fees for that tax document is just over $200.
However, if you own your own business, your tax preparation fees will be considerably higher.
For example, if you participate in a partnership business, you’ll need to fill out form 1065, and the average tax service fee for that form is $550. If you run a corporation, the tax preparation fee for the 1120 form is close to $700.
Furthermore, if you’re filing taxes on behalf of an estate, then you’ll really be shelling out the big bucks for your cost of tax preparation. Form 706 for estates has an average tax preparation fee of more than $2,000.
According to the IRS website, the average tax service fee breakdown for 1040 forms is as follows:
- 1040: $280
- 1040A: $90
- 1040EZ: $40
Pricing Methods Used by Firms for Income Tax Preparation Fees
If you do eventually decide to hire an accountant to do your taxes, you’ll not only need to know the answer to, “How much do accountants charge for tax returns?” but also how they’ll charge you.
It is important for you to discuss with your tax accountant how he/she will charge you for tax preparation fees.
According to The Balance, your tax service fee could fall into any of the following categories
- A set tax service fee for individual forms or schedules
- A tax service fee based on the prior year, with added adjustments for any changes
- A minimum tax service fee plus any fees for complexity
- A value-based tax service fee based on the tax preparation itself
- An hourly rate for total time spent preparing the tax return
- Set tax services fees for each item entered
As you can probably tell, the answer to the question, “How much does it cost to get your taxes done?” will depend largely on the pricing method used by the firm for your tax preparation fees.
Your income tax preparation fee may be based on a set tax preparation fee for each tax form or schedule, a tax preparation fee based on what you were charged last year, and any changes in your tax situation or a tax preparation fee based on an hourly rate of work.
The best pricing method for your tax preparation fees will depend largely on your own personal situation. For example, if you simply need a 1040 filled out, then it’s probably best if your income tax preparation fee is based on a per-form basis.
However, if you need a number of different tax forms filled out, then it may be best if your cost of tax preparation is based on an hourly or fixed tax preparation fee rate.
What Should Be Included in Your Income Tax Preparation Fees?
Another important question to ask your tax accountant is what services are included in your income tax preparation fees.
Additional Fees and Tax Return Copies
For example, if you decide to file electronically, will the firm charge you extra tax preparation fees?
Furthermore, since you may need a copy of your tax return later in the year, does your tax service fee include copies of your tax return that you can solicit at any time during the year?
Since tax firms usually have lots of expertise on how to apply for tax credits and deductions, your tax preparation fees should also include a face-to-face consultation, where your tax accountant can answer any questions that you may have.
You may even be able to gain enough knowledge so that the next year, you can file your taxes by yourself and thus avoid having to pay income tax preparation fees altogether.
Lastly, there is a widely shared fear of having one’s tax return audited. What’s worse is when your tax return is audited and you haven’t prepared your own tax return.
Your tax preparation fee should also include an audit protection, meaning that your tax firm won’t charge you any extra income tax preparation fees should your tax return need any changes.
Fees That Seem Too High
Unfortunately, some tax companies charge excessively high tax preparation fees. A Treasury Department rule prohibits tax accountants from charging “an unconscionable fee” for their tax services fees.
Furthermore, it is illegal for a tax professional to charge you a tax preparation fee based on a percentage of your tax refund.
If you feel that the firm that is helping you file your taxes is charging exorbitant tax preparation fees or employing an illegal pricing method for their tax income tax preparation fees, you can seek legal help.
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Average Tax Preparation Fees (Per IRS Forms)
As we’ve mentioned, the average tax preparation fees will vary depending on a number of factors that determine your unique tax situation.
In the table below, we’ll compare the national average tax preparation fee based on commonly used tax forms. These tax preparation fee averages were taken from the IRS website.
Average Tax Preparation Fee
1040 Schedule C
1120 C Corporation
1120 S S Corporation
1065 Form Partnership
1041 Fiduciary Form
990 Tax Exempt Organization Form
940 Tax Form Federal Unemployment
Schedule D Capital Gains and Losses
Schedule E Supplemental Income and Loss
Schedule F Farming Form
Table: Tax Preparation Fee Averages from IRS website
National Average Tax Preparation Fee (Breakdown by US Regions)
Furthermore, your tax preparation fee will also largely depend on the region in which you live. Below, we offer average tax preparation fees based on different regions throughout the United States.
Region of the United States
National Average Tax Preparation Fee
New England (CT, ME, MA, NH, RI, VT)
Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)
West South Central (AR, LA, OK, TX)
West North Central (IA, KS, MN, MO, NE, ND, SD)
Middle Atlantic (NJ, NY, PA)
South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)
East South Central (AL, KY, MS, TN)
East North Central (IL, IN, MI, OH, WI)
Pacific (AK, CA, HI, OR, WA)
Table: Tax Preparation Fee Averages Based on Region from IRS website
Conclusion: Is It Worth It to Pay for Tax Preparation Fees?
If you have a fairly simple tax situation and have a good understanding of how the tax system works, then it is probably not a great idea to shell out money for income tax preparation fees.
In these cases, there are plenty of tax preparation software options available to help you easily do it yourself and save on the cost of tax preparation.
However, if your tax situation is more complex or if you aren’t up to date on all of the new tax credits and opportunities for deductions, then it may very well save you money to pay tax preparation fees to a qualified tax attorney.
Read More: Best Tax Software for Small Businesses
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