Tax professionals use a variety of methods to set prices, including per-item, per-form or per-hour rates. For example, a practitioner might charge:
- A set fee for each tax form or schedule.
- A minimum fee, plus an amount based on the complexity of the client’s return.
- A fee based on the subjective value of the tax preparation service.
- An hourly rate for time spent preparing the tax return.
- A set fee for each item of data.
Whether you use one of these methods, a combination of methods or some other approach to setting your fees, it’s a good idea to conduct an annual review in advance of tax return season to ensure that you are not shortchanging yourself. Your fee structure should factor in your cost, plus a reasonable profit margin. On the other hand, you’ll want to make sure you are not charging more than the market will bear.
While not definitive, comparative data on what other tax pros are charging can be a useful guideline for assessing your fee structure. For example, the latest data from the National Society of Accountants (NSA) provides some insight into the fees charged by tax professionals for returns filed in 2015. The NSA study reports the following national averages for Form 1040 income tax returns and a corresponding state return:
- $159 for a Form 1040 without itemized deductions.
- $273 for an itemized Form 1040 with Schedule A.
- $447 for an itemized Form 1040 with Schedule A and Schedule C reporting business income.
The location of your tax practice will have a bearing on the fees you can charge. For example, the NSA study found significant regional differences in the average fee for a Form 1040 with Schedule A and a state return, as well as variations within each region, with the highest fees reported on the east and west coasts.
- In the West, average fees ranged from $256 in the Mountain states (AZ, CO, ID, MT, NV, NM, UT and WY) to $348 in the Pacific region (AK, CA, HI, OR and WA).
- In the Midwest, average fees ranged from $198 in Western North Central states (IA, KS, MN, MO, NE, ND and SD) to $240 in the more Eastern North Central states (IL, IN, MI, OH and WI).
- In the Northeast, fees ranged from $246 in New England (CT, ME, MA, NH, RI and VT) to $314 in the Middle Atlantic State (NJ, NY and PA).
- In the South, fees varied from $205 in the West South Central states (AR, LA, OK and TX) to $262 in the East South Central states (AL, KY, MS and TN), and $268 in the South Atlantic region (DE, DC, FL, GA, MD, NC, SC, VA and WV).
Delinquent or Disorganized Clients
It’s not uncommon for preparers to charge a higher fee to clients who submit their return paperwork at the 11th hour, or who submit a jumbled mess. The NSA study found that 67 percent of preparers increase their fees by an average of $114 for disorganized or incomplete paperwork. Practitioners add an average of $93 to the return fee if client information is not provided at least two weeks in advance of the filing deadline, and an extra $88 to expedite a return. The national average charged for an extension is $42.
Editor’s Note: Are you interested in learning about value pricing? Check out the Intuit® ProConnect™ Tax Pro Center article, “Value Pricing for Your Firm,” to get access to several resources that can help you learn more about value pricing.