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, complexity, and risk. 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:
- A very straightforward tax return (federal and state) generally costs between $200-$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 $200 side of that scale, while any return with dependents, basic itemized deductions (home mortgage interest, property taxes, and charitable contributions), childcare expenses, and/or simple investment income would more likely be on the $250 side of that scale.
- A slightly more complicated (but still mostly straightforward) tax return will generally be closer to $300. This would include returns with ongoing small-scale self-employment or rental income, or home office deductions, or 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.
- My median tax preparation fee each year tends to be right around $350.
- Tax returns in the $400+ range (more complicated than my average return) usually involve one of the following: earning more than $50k in self-employment revenue (before expenses); putting a new rental property into service, selling a rental property, or owning a rental property in a different state; starting up a very 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; having more than a few ESPP/RSU/ISO/NQSO stock sales that require basis adjustments; receiving taxable income from multiple states, reported to you in a way that requires adjustment to avoid double-taxation; receiving significant amounts of pass-through income from partnerships or trusts; or setting up a new home office that requires initial depreciation calculations.
- Maybe 10% 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/median ($350) tax return would be around $700. Three times as much work would be $1,050. And so on. Typically, the tax returns at this higher end of the scale are ones that involve several items from that $400-tier bullet point above. (These can quickly become quite difficult! 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.) 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 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.