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William Perez

Tax Prep Fee Too High?

By February 27, 2006

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Today's tax question comes from Mark Mackey in Tennessee. He asks, "I recently filed my 2005 taxes and I feel it was very basic. My situation consists of filing jointly, one dependent,and mortgage interest. My preparer charged me the amount of $650.00, and when I inquired about the fees before getting my return I was told that the fees depend on what information the preparer gets from the IRS and she would not disclose to me the amount that the refund was for. My question is: Was I overcharged, cheated, and what can I do about it?"

Spending $650 for a fairly straightforward tax return sounds quite high to me. Tax preparers use a variety of pricing strategies. Some charge by the form, more complex tax forms being priced higher than simpler tax forms. Other preparers charge by the hour, so the longer it takes to prepare a return, the more you will pay. Other firms write up an invoice for a fixed price, based on their estimates of how complex the return will be. All these methods come down to one thing, really. The more complicated your tax return, the higher your fee will be.

Personally, I think the fairest method is an hourly rate. That's because an experienced tax preparer should be proficient in all the essential tax forms, and should be working efficiently to keep your invoice as low as possible.

Based on my experience and conversations I've had with accountants around the country, rates tend to range from $150 to $200 per hour. This range includes some of the most popular tax accountants in America.

H and R Block, the popular nationwide tax prep company, charged an average of $151 per tax return in 2005. Prices vary by location, complexity of the return, and how busy an office is. This figure comes from H&R Block's Fact Facts web page. Considering that it takes an hour or so to have your return prepared at Block, this fee seems in line with fees for independent tax accountants. Jackson Hewitt charged an average of $157 per tax return in 2005, according to their 2005 annual shareholder report (PDF document, 100 pages, information found on page 6). Liberty Tax does not disclose average fees, nor could that figure be calculated using their publicly available financial reports.

A tax prep fee of $650 could be justifiable if the return took over four hours to prepare, or if the return was extraordinarily complex. I recently spent well over four hours on a single tax return last week, but the client had a lot going on.

So, if you haven't filed your return, you can and should ask to speak with the manager of the firm. Ask them why the fee is so high. Most firms have a policy that they will not charge you if you leave without filing the return. If you are displeased with the level of service you received and feel the fee is not representive of the level of quality you received, I would take your business somewhere else.

Finally, it is illegal and unethical for tax preparers to based their fee on a percentage of your refund. The law for this is found in Treasury Circular 230 (PDF document, 60 pages, the prohibition on percentage-of-refund fees is found on page 50). If your tax preparer is a CPA, Enrolled Agent, or tax attorney, they are bound by these rules. You can file complaints against tax preparers by contacting the IRS' Office of Professional Responsibility at (202) 622-2207. CPAs can also be reported to their state Board of Accountancy, and attorneys can be reported to their state bar association. You can also contact your local Better Business Bureau to register your complaint.

I'm not saying that your fee is unethical. All I am saying is that based on the information you provided, it seems you might have been overcharged. Find out how they calculated your fee and why they think your return was particularly complex.

Throughout the tax season I will be answering one tax question per day. Do you have a question? Visit the Ask a Tax Question page. Disagree with my answers? Post your comments in the Tax Forum.

Comments
December 14, 2009 at 6:58 pm
(1) Joe mastriano, CPA says:

Mark’s question said that the preparer said the fees are based on how much information the preparer gets from the IRS. Many times we obtain the 3rd party payor information from the IRS. It requires placing a power of attorney on file at the IRS CAF unit, then pulling the records, then explaining them to the taxpayer. Their are additional fees for this. Anyway, I think your answer was pretty good. We offer a lot of free valuable information on our site. I invite your readers to examine it.

December 14, 2009 at 7:01 pm
(2) Joe mastriano, CPA says:

Left out the url
Link textIRS Problems

December 16, 2009 at 11:32 pm
(3) Juston says:

I would have to agree, this fee at face value seems high. I can’t even see this being a reasonable fee if it included representation through an audit. I could see $650 being charged for preparation of an 1120 for an S or C corp by a very experienced and reputable accounting firm. But not a 1040 client. Not even a 1065. I too am a fan of hourly charges, which is how I base my fees. Another issue is if Tennessee has adopted state laws to regulate unenrolled preparers doing business in that state. Cir. 230 regulates attorney’s, CPA’s, and EA’s. But how many self proclaimed tax preparers out there are NOT covered by Cir. 230 or OPR? This issue is being addressed by congress, but at present California, New York, Oregon, and Maryland are the only states that regulate unenrolled tax return preparers and subject them to Cir. 230 provisions.

December 24, 2012 at 4:21 pm
(4) Basil Green - IRS Help says:

This is why all taxpayers should get a basic understanding of what their filing entails. That plus being organized can significantly reduce preparation time and, by extension, charges.

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