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 primarily on time spent; my current billing rate is $240/hr, plus a per-return charge of $20 to cover general software and filing expenses, and a $20 charge (plus time) for any business/rental return that requires separate filing with the City of Portland*. I believe this to be a much fairer way of doing things, with the 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.
(* The City of Portland does not use the same e-filing system as is used for federal and state income tax returns. It is a hassle, to say the least.)
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:
- A very straightforward tax return (federal and state) generally costs between $200-$260, depending mostly on the amount of data entry required. A return with not much more than simple W-2 income would be on the $200 side of that scale, while any return with dependents, basic itemized deductions (home mortgage interest, property taxes, and charitable contributions), childcare expenses, or very simple investment income (interest and dividend income), would more likely be on the $260 side of that scale. All of the above might put you in the $260-$320 range.
- A slightly more complicated (but still mostly straightforward) tax return will generally be in the $320-$380 range. This would include returns with small-scale self-employment or rental income (revenue under $25k, minor expenses, simple depreciation), buying or selling a main home, normal buying and selling of stocks or mutual funds, etc. If more than one of those “slightly more complicated” items apply, that will likely put you into the $380-$440 range.
- My median tax preparation fee each year tends to be right around $360. That is, my “average” client is someone with a tax situation described in the previous bullet-point.
- Tax returns in the $400-$500 range usually involve one of the following: earning more than $50k gross revenue from self-employment; putting a new rental property into service; selling a rental property; starting up a small business (no employees, no significant assets); having total income over $200k (single) or $250k (joint) such that “net investment income tax”, “alternative minimum tax”, and/or “passive loss limitations” need to be factored in; ESPP/RSU/ISO/NQSO stock sales that require basis adjustments; receiving taxable income from multiple states; receiving significant amounts of pass-through income from partnerships or trusts; or setting up a new home office that requires initial depreciation calculations.
- Maybe 15% of the tax returns that I prepare end up in the $500-$700 range, and another 5% in the $800+ range. The easiest way for me to think of it is: a tax return that’s twice as much work as my “average”($360) tax return would be around $700. Three times as much work would be around $1,000. And so on. Typically, the tax returns at this higher end of the scale are ones that involve multiple items from the $400-$500 tier. Examples would be a return with a full mix of self-employment, rental, and investment income; a joint tax return with significant self-employment income for both spouses; a return with a rental property sale in a different state; a return with small business income involving employees, multiple owners, or books that require significant clean-up; or a return with three or more rental properties.
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 minimum fee would be $400 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 higher. 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 $260-$380 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 simple S-Corporation return might end up around $400, 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 $240/hr, billed in 15-minute increments.