It's tax Time. You want an accurate tax preparation, but you do not want to get knocked over the head with tax prep fees. We are going to go over tax prep fees and your tax filing options so that you have a better understanding of market rates, price gouging, and scope of work.
Although every CPA is not versed in tax code or certain types of tax prep, They will be used as the standard for comparison with other tax preparers as they are credentialed with a degree and a license. Please refer to "How to Choose a Tax preparer" to see all the different types of tax preparers.
Most legal and professional tax preparers charge per Schedule Plus and hourly rate for any complexities or services performed outside the realm of tax preparation that are necessary in order to prepare the taxes.
Fees CANNOT be charged as a percentage of a refund, and tax prepares CANNOT price gouge for simple tax prep no matter what the credential or background.
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Results of the 2023 NATP Tax Professional Fee
By: National Association of Tax Professionals
The average cost for filing
Schedule C business form was $192, with average hourly fees of $149.95
1120 for corporations $181.57 to file, with average hourly fees $913 preparation rates
The cost of tax preparation varies due to several factors
Government Regulation; Tax preparers have an obligation to take continuing education for tax code updates, Purchase a software license for professional software regulated by the IRS standards (we can't use Turbo or free file for consumers as there is no tracking for paid tax preparers), IRS fees, and other business expenses such as software to keep sensitive information safe from cyber attacks.
Software Fees; The software companies and the middle man Service Bureaus charge additional fees to the tax preparer.
Bank Fees; Tax preparers have to use IRS approved banks to subtract the cost of tax prep from the refund as tax preparers are NOT allowed to touch a refund or endorse refund checks. Of course with banks, come banks fees. Some fees tax preparers are not allowed to pass on the customer i.e., Refund loan fees.
The complexity of your tax return; if you are unorganized and the tax preparer has to add up your receipts for income and expenses or draft any other statements to justify the claims on your tax return, you will mostly likely accrue an hourly rate outside of tax prep.
Amount of tax services you seek; Business tax structure correction, addressing IRS letters, resolving prior tax issues that have to be addressed before filing current tax return, etc.
The experience of the tax professional: as mentioned previously, Legal tax preparers tax continuing education classes to stay UpToDate with tax code. Some have degrees in Accounting or Finance that aids in advisement and complex tax returns. You cannot compare with fly-by-night tax preparers.
Shortage of Accountants and CPA's; fewer people are entering the field due to the qualification requirement not generating enough of a salary reward. That increases the workload for those that are left. The world of finance, business, and accounting gives you a bird's eye view of different industries and the ability to see trends, including government trends, that help with planning among other valuable services, the money generated doesn't appeal to the newer generations who would like to get rich in 5 minutes by clicking a button.
Inflation; Fees automatically go up as soon as the government makes regulation. On top of that, businesses get hit inflation just like consumers.
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Your filing Options
If you have a simple tax return (a W2 with no schedules, W2 claiming EITC, W2 with social security), desire no tax advisement or consultation, are a veteran, or make below a certain income - you have free file options.
VITA - an IRS sponsored program that gives grants to nonprofit organization to train volunteers in BASIC tax preparation to offer free filing services to those who qualify.
They cannot do complex returns and are very limited on how they can advise. They are not allowed to do business tax returns. They will not be qualified to assist in IRS matters or resolutions.
IRS free file - Since Turbo Tax (a software company, not a tax prep business) decided not to renew their IRS contract, the IRS has used their new budget awarded by the Biden Admin to enhance their technology, including their website. There is a free file on IRS.gov for individuals who would like to self prep. You will be responsible for everything you claim on your tax return and will not have representation for IRS matters unless you hire out for those services.
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The Bottom Line
As you can see, there are many factors the determine the cost of tax preparation. There are many who fight over the ability to provide the service:
Professionals who have the ability to be an advocate for the taxpayer before the IRS, follow the code of ethics, ad have actual knowledge of the tax code.
Software Companies who are only interested in profits using tax prep fees, selling customer information to other companies like mortgage companies, credit card companies, and upselling the services they can't provide because they are not tax professionals.
The fly-by-nights or fraud preparers who can't represent you before the IRS, can't give relevant or accurate advice, and not equipped to handle complex tax returns.
But the choice is up to the tax payer and what they value the most.
Whether you want a simple file with no interest in tax advisement or insight, or have a complex situation and need intervention by a knowledgeable professional. Everyone wants to save money, but you don't want to risk losing thousands trying to save a couple hundred. The key is finding a valuable professional and paying them their worth.
Remember, when the government shut down during covid, it was the professional tax preparer who was frontline to assist with getting records to help business owners qualify for the Covid loans, able to check the status of refunds with the help of the taxpayer advocates, had the ability to correspond on behalf of the tax payer via paper mail, and provide services through their IRS Pro online account. It was also the tax professional who helped those retrieve their stimulus well past the deadlines.
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