Many tax preparation businesses charge a fee that’s based on the number of forms, worksheets, and document entry required for a particular tax return. (E.g. $100 for a Schedule A, $20 for each W-2, etc.) In my experience, this results in absurdly inconsistent pricing, provides an incentive for the tax preparer to add in unnecessary forms and worksheets, and is just far too inflexible to accurately reflect the amount of work that goes into one tax return versus another.
My pricing is instead based on a combination of time and complexity. I believe this to be a much fairer way of doing things, with the (significant) disadvantage that I can’t print out your tax return, show you the list of forms, add it all up, and say, “This is your final fee.”
It requires a degree of trust, to be sure. But I’ve been doing this work for many years now, and I haven’t found that to be a problem.
Regardless of the pricing method used, it’s always difficult to give an accurate fee estimate for income tax preparation without knowing the details of your particular tax situation. In the interest of providing general guidelines, here’s how it often works out:
[Please note that fees for the 2019 tax season have increased relative to last year’s fees by roughly 10-15%, to account for the additional work and overhead associated with the mess of new tax laws at the federal, state, and local levels. This increase is reflected in the fees shown below.]
- A very straightforward tax return (federal and state) generally costs between $180-$250, depending mostly on the amount of data entry required. A return with not much more than simple W-2 income would be on the $180 side of that scale, while any return with dependents, basic itemized deductions (home mortgage interest, property taxes, and charitable contributions), childcare expenses, and simple investment income would more likely be on the $250 side of that scale.
- A slightly more complicated tax return will generally fall in the $250-$300 range. This would include returns with ongoing small-scale self-employment or rental income, home office deductions, more complicated itemized deductions (including buying or selling a main home), normal buying and selling of stocks or mutual funds, etc.
- If a number of those “slightly more complicated” items apply, that can certainly put things in the $300+ range. The cumulative impact of multiple items is always greater than the sum of its parts. That is, everything interacts with everything else on a tax return, and the more pieces you add in, the more complex the interactions become, and the more difficult it can be to work everything out.
- Items that might land you in the $350+ range include putting a new rental property into service, selling a rental property, starting up a very small business (with no employees and no significant assets), having more than a few ESPP/RSU/ISO/NQSO stock sales, receiving taxable income from multiple states, earning more than $50k in self-employment revenue (before expenses), receiving non-trivial amounts of pass-through income from partnerships and trusts, setting up a new home office in a home you own, etc. And again, one of these complications is going to be a different situation than more-than-one of them.
- A significant percentage (maybe 30%) of the tax returns that I prepare end up in the $450+ range (or $500+, $600+, and so on). There are any number of reasons why a return might end up in this range. Some examples would be: multiple items from the previous bullet-point; small-business income with employees and/or multiple owners; higher-income earners subject to “alternative minimum tax”, “net investment income tax”, and/or “passive loss limitations”; returns with a full mix of self-employment, rental, and investment income; returns with an unusually high number of securities transactions; and returns claiming a foreign earned income exclusion.
- It’s up at this high end that it becomes very difficult (I’d say impossible) to provide an accurate up-front estimate. Whereas I have a quick intuition when it comes to simpler returns, and can immediately see and understand the flow of numbers, with more complicated returns, I have to spend a lot of time just looking at everything. The “sense” of it becomes lost in a slew of forms and worksheets, numbers here tied to numbers there, and I have to slowly pick my way through it to make sure things are ending up where they’re supposed to end up.
Bear in mind that there are many unforeseen (and often unforeseeable) issues that can cause your tax return fee to be higher than an initial estimate. Common items in this list would be IRA or 401k over-contribution issues (these can be such a hassle to reverse!), complications determining the gain/loss on securities transactions, and errors in your source documents (W-2’s, 1098’s, etc) that need to be fixed.
A few other situations that are worth mentioning specifically:
- If you’re married-filing-separately (for student loan purposes, for example) the bare minimum fee would be $300 for the two sets of returns. If there’s basic optimization involved (e.g. figuring out who will claim the dependents or other deductions to provide the greatest tax benefit) the fee will likely end up closer to $400. Generally speaking, a set of two married-filing-separate returns is more complicated than two single returns, and far more complicated than one joint return.
- Amended tax returns usually fall in the $200-$300 range, depending on the level of complexity and whether an amended state return is also required.
- Tax returns for business entities (partnerships, multi-member LLC’s, and S-corporations) vary widely in cost. A very straightforward S-Corporation return might end up in the $300-$400 range, assuming your bookkeeping records are in decent shape. Partnership returns tend to be slightly more complicated, and the fee is usually higher.
Note that for additional work beyond standard income tax preparation, my billing rate is $120/hr outside of tax season, billed in 10-minute increments. During tax season, Jan 15 – Apr 15, that increases to $240/hr, but I generally refuse to take on any non-tax-preparation work during tax season.