What can you expect to spend for tax preparation costs this filing season if you are one of the estimated 73.4 million Americans who utilize professional preparers to complete and file their electronic tax returns, or if you intend to become one?
- When tax season arrives, more than half of all Americans seek professional assistance in preparing and completing their computerized tax forms.
- Tax accountants and online preparation services are offered at different pricing ranges, which vary depending on the complexity and time required to complete a return.
- The amount of ability and experience of the preparer will also be considered, with CPAs and tax lawyers charging a higher base rate than seasonal employees or PTINs.
Variables That Affect Tax Preparation Fees
There is no set price for tax return preparation. The majority of tax preparers offer a fixed cost each return, although others may charge an hourly rate. There are several factors that might influence how much you spend for this service.
- The kind of return. The kind of return you submit influences the cost of preparation. According to the National Society of Accountants, the average charge for producing Form 1040 with Schedule A to itemize personal deductions and a state income tax return in 2021 was a flat rate of $323; the average fee for Form 1040 with the standard deduction and a state income tax return was $220. Fees rise as you add schedules to your return. The average extra charge for Schedule C for a single proprietor/independent contractor, for example, was $192. The extra charge for reporting capital gains and losses on Schedule D was $118. The extra charge for reporting rental income and losses on Schedule E was $145. Individuals whose returns required Schedules A, C, D, and E paid a total price of $778 on average. In 2020, several preparers will raise their rates.
- Your current location. Fees vary greatly throughout the nation. The Southeastern United States has the lowest fees, whereas New England and the West Coast have the most.
- The preparer’s expertise. The costs charged are also affected by the preparer’s certifications (described below), as well as their expertise. A certified public accountant (CPA), for example, often costs more than an enrolled agent.
Determine Your Needs
Determine your needs before choosing a person or business to assist you.
- Complexity. The more complicated your return, the higher the cost of preparation. This is because you will most likely need the services of a more expert preparer. A person with investments classified as passive activities, for example, may face higher preparation fees because the preparer must make determinations (e.g., whether the activity has been completely disposed of, allowing carried-over losses to be claimed in full) rather than simply fill in the numbers.
- The amount of labor. A person with one rental property will most likely not pay the same charge as someone with ten rental properties, each of which requires multiple entries on Schedule E for rental income and costs, including depreciation estimates.
- Situations unique. Individuals participating in specific sorts of transactions may need more time and counsel for tax preparation. For example, if the individual has a “listed transaction” that the IRS has designated as abusive (e.g., syndicated conservation easements for claiming high charitable deductions), another form is required to disclose it on the return as required by tax law; the preparer may also offer advice on what to do with the investment going forward.
Select the Best Preparer for You
After considering your tax-preparation requirements, you should consider the sort of preparer who can satisfy those requirements. You have the following options for a paid preparer:
- Attorney: a person who is authorized to practice law by state courts or state bars. Some may have a master’s degree in taxes. Working with an attorney may provide attorney-client privilege for discussions if they construct a so-called Kovel Agreement, in which the taxpayer employs a tax attorney, who then hires a tax accountant to prepare the returns.
- A certified public accountant (CPA) is someone who has passed the Uniform CPA test and is licensed to practice as a CPA. A CPA may specialize in tax planning and preparation.
- Enrolled agent: a person who has completed continuing education courses and passed the Special Enrollment Examination. An enrolled agent, like lawyers and CPAs, has limitless representation privileges before the IRS.
- Participant in the IRS’s Annual Filing Season Program: someone who is not an attorney, CPA, or registered agent but has completed the IRS’s Annual Filing Season Program. A person in this situation has limited representation rights before the IRS.
- PTIN holder: a person who is not one of the above but has received a Preparer Tax Identification Number (PTIN) in order to file tax returns for the current filing season; they have limited representation rights before the IRS.
How Much Does a CPA Cost to File Taxes?
In 2021, the average rate for employing a certified public accountant (CPA) to prepare and file a Form 1040 and state tax return with no itemized deductions was $220, while the fee for an itemized Form 1040 and state tax return was $323. As the intricacy of a return rises, so will the costs.
How Much Does it Cost to Do My Own Taxes Online and E-File?
Many online software systems, like as H&R Block and TurboTax, provide free versions for basic federal returns. Depending on the intricacy of the return, more intricate instances might cost up to $150 or more.
What’s the Difference Between an Accountant and a Tax Preparer?
The cost difference between an accountant and a tax preparer is dependent on the person. A certified public accountant may be more costly than hiring a tax preparer to file basic taxes since they sometimes offer financial services beyond basic tax preparation.
The Bottom Line
The IRS offers advice on selecting a preparer. Through the IRS Directory of Federal Tax Return Preparers, you may check a preparer’s qualifications, including whether they have a valid PTIN for current filing season.
Before you agree to engage with a preparer, get a price estimate. While fees alone should not be used to choose a tax return preparation, they are an essential issue to consider.
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