In this article, our CPAs discuss several instances in which you can and cannot deduct…
As you begin getting information ready for this tax season, you may be wondering where to begin. Preparing your taxes isn’t something that most of us relish doing. It requires a lot of organizing information and making sure that all of our “i’s” are dotted and “t’s” are crossed. You may be wondering whether you need to have a tax professional complete your tax return or whether you can do it using online accounting software. And, regardless of which one you choose, how much will the process cost?
At C.E. Thorn, CPA, PLLC, we frequently get asked about the cost of tax preparation. And, there isn’t one stock answer because it depends on the complexity of your tax situation as well as other factors. However, in this article, we address some factors that go into the cost of tax preparation and the average fees you can expect for your 2024 tax returns.
What is a Tax Preparation Fee?
A tax preparation fee is a cost you pay when you either use an online service or a CPA. With online tax preparation services, you are guided by the system through entering your income from tax documents and entering such deductions as mortgages and student loans. The online service charges a fee to produce the required tax forms based on the information you have entered.
With a CPA, you get more personalized service. The tax professional helps by informing you of the information you need to gather and then prepares the tax forms needed for your situation. Sometimes, they will charge an hourly rate but sometimes it is a set fee. You may incur a higher cost of tax preparation by a CPA compared to an online service, but you are benefiting from their CPA credentials and you don’t have to do all the work yourself.
What Factors Affect the Cost of Tax Preparation?
Here are three factors that affect the cost of tax preparation:
Qualifications of the Tax Preparer
An average tax preparer more than likely charges less than a high-quality professional like a Certified Public Accountant who has a state-issued license. If you are an individual who has a more complicated tax situation or owns a business, you want to get the best preparer that you can. You may pay more for a high-quality professional who has a lot of experience. It’s probable that a professional who has a depth of experience and knows the IRS rules and regulations can see areas where you can take deductions and lessen the tax burden better than one with less experience and training.
Organization of Your Tax Records
The cost of tax preparation is also determined by how much digging your tax preparer has to do to find your relevant financial information. The more organized you are, the less work a tax preparer has to do. Getting your papers in order will save you money in the long run.
Complexity of Your Tax Situation
For a basic tax filing, an online service may be sufficient. However, the more complicated your tax situation is, the more time it will take to prepare your return and, therefore, will cost more. Expenditures and tax breaks can make your tax return more complex. Life events can affect your taxes and make a situation more complex in a given year. Here are some events that are factors:
- Getting married
- Having a child
- Educational expenses
- Buying or selling a home
- Getting a promotion at work
- Receiving an inheritance
- Dealing with a death
- Retirement contributions and distributions
- Having a side job
Determine Your Needs
When you are selecting the service or firm that will help you in tax preparation, decide what you require.
How Complex Is Your Return?
When your return is more complex, the more it will cost to prepare your taxes and the more reason you may need an experienced preparer. For instance, a person with investments classified as “passive activities” may encounter higher preparation fees because the preparer must determine items such as carried-over losses instead of simply filling in the numbers.
What Is the Volume of Work Required?
An individual with one rental property will not pay the same fee as another with ten properties where each property requires numerous entries on Schedule E for rental income and expenses, including depreciation calculations.
Are There Special Situations?
Certain types of transactions may require additional time and advice for tax preparation, such as a “listed transaction.” A listed transaction is the same or similar to one that the IRS has determined to be a tax avoidance transaction. The IRS has designated a listed transaction as an abusive transaction that requires another form to disclose it on the return. An experienced tax preparer may be able to offer advice about what to do with the investment going forward.
Average Cost of Tax Preparation by a CPA
Given the information we have outlined in this article regarding factors that affect the cost and according to the National Society of Accountants (NSA) in a recent survey report, the average hourly rate of CPAs for filing federal/state tax returns was $180. Of course, the number of hours billed by a CPA depends on the service, organization of your files, and so forth.
The rates charged by accountants vary. Some CPAs may charge a fixed fee according to the service, while others charge hourly or by the form. If you prefer a particular billing method, keep that in mind when researching CPAs, and make sure to ask about billing methods so you can estimate the cost of tax preparation.
One of the most common billing methods is per form, which enables small businesses that have tight budgets to spend more selectively and only spend where necessary.
For example, you may pay these fees for tax preparation:
- Fixed Fee: 26.8%
- Hourly: 7%
- Fixed & Hourly: 23.6%
- Per Form: 37.8%
The Cost of Tax Preparation
Typically, a CPA will charge either by the form or by the hour. Below is the average cost of tax preparation per form and average hourly fees, according to the NSA report.
|Cost per Form
|Average Hourly Fees
|Form 940 (Federal Unemployment)
|Form 940 (Schedule C, Self Employment Tax)
|Schedule C (Business)
|Schedule E (Rental)
|Schedule EIC (Earned Income Credit)
|Form 1040 (not itemized)
|Form 1040 (itemized)
|Form 709 (Gift Tax)
|Form 1041 (Fiduciary)
|Form 1065 (Partnership)
|Form 990 (Exempt Organization)
|Form 1120-S (S Corporation)
|Form 1120 (Corporation)
|Form 706 (Estate)
Aside from fees for filing taxes and federal returns, a tax professional may charge additional fees for special requests, or to account for additional work created by disorganized files, late filing, or IRS audits. Here are some average fees for typical additional charges:
- $166 for disorganized or incomplete files
- $56 to file extensions
- $377 retainer for tax prep in the non-current year
- $902 retainer for IRS audits
- $136 to expedite returns
Can You Deduct Tax Preparation Fees?
Taxpayers used to be able to deduct costs associated with preparing their tax returns if they itemized their deductions, but that tax break disappeared for most people in 2018 after the Tax Cuts and Jobs Act (TCIA) took effect. Currently, unless you are self-employed, taxpayers cannot deduct the expenses associated with tax preparation.
- You can only deduct your tax preparation fees on your federal income taxes if you are self-employed or a statutory employee.
- The deduction is for business costs and fees only, not personal costs incurred when filing your taxes.
You can deduct your business tax preparation fees if you meet the following criteria:
- A sole proprietor or an independent contractor who files a Schedule C
- A farmer who files Schedule F
- A landlord who earns income from rental properties and files Schedule E
- An individual who earns income from royalties and files a Schedule E
You may not be able to deduct the entire cost of the tax preparation fees. The amount of the fee charged for preparing the business portion of your taxes is the amount you can claim. The remainder, including the standard deduction, personal deductions, and credits fall into personal expense.
Contact Our Raleigh CPA Office for Tax Preparation Services
If your tax situation is not a standard, run-of-the-mill simple one, you should contact us at C.E. Thorn CPA, PLLC. We offer personal tax preparation services for our monthly clients who are business owners. That means, when you outsource your business accounting to our firm throughout the year, C.E. Thorn, CPA, PLLC, we will handle your personal tax return for you! To get started, fill out our contact form below or call our Raleigh accounting firm today at 919-420-0092.
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