Suppose you are one of the roughly 85.05 million Americans the Internal Revenue Service (IRS) estimates use paid preparers to complete and file their electronic tax return. What can you expect to pay for tax preparation fees this filing season?
Key Takeaways
- More than half of American taxpayers seek professional help preparing and filing their electronic tax returns.
- Tax accountants and online preparation services are available at various price points and vary based on the complexity and amount of time needed to process the return.
- The preparer's skill level and expertise will also come into play, with CPAs and tax attorneys charging a higher base rate than seasonal workers or PTINs.
Variables That Affect Tax Preparation Fees
Most preparers charge a flat fee per return, but some may charge an hourly rate. Many variables can determine what you’ll pay for this service.
The first is the type of return you have. The return you file affects the price you’ll pay for preparation. According to a National Society of Accountants study in 2021 (latest information):
- The average fee for preparing Form 1040 with Schedule A to itemize personal deductions, and a state income tax return, was a flat fee of $323.
- The average fee for Form 1040 with the standard deduction, plus a state income tax return, was $220.
- The additional fee for Schedule C for a sole proprietor/independent contractor was $192.
- The additional fee for Schedule D to report capital gains and losses was $118.
- The additional fee for Schedule E to report rental income and losses was $145.
So individuals whose returns require Schedules A, C, D, and E paid an average total fee of $778.
Location also plays an important part in the fees you pay. Fees vary considerably across the country. Those in the Southeastern U.S. pay the lowest costs, while those in New England, the Mid-Atlantic, and the West Coast pay the highest.
Finally, your expert's experience influences how much you have to pay. The credentials of the preparer, as well as their experience, also have an impact on the fees that are charged. For example, a certified public accountant (CPA) usually charges more than an enrolled agent.
Determine Your Needs
Before you select the person or firm that will help you decide what you require.
- Complexity: The more complex your return, the more you’ll pay for preparation because you’ll likely need an experienced preparer. A person with investments classified as passive activities may face higher preparation fees because the preparer must determine items such as carried-over losses and not merely fill in the numbers.
- The Volume of Work: An individual with one rental property will not pay the same fee as another with 10 properties, each requiring numerous entries on Schedule E for rental income and expenses, including depreciation calculations.
- Special Situations: Certain types of transactions may require additional time and advice for tax preparation, such as a “listed transaction,” which the IRS has designated as an abusive transaction that requires another form to disclose it on the return as required by tax law; the preparer may also offer advice about what to do with the investment going forward.
Select the Best Preparer for You
Look at the type of preparer that can meet your needs. Your choices for a paid preparer include:
- Attorney: Some licensed attorneys may have an advanced legal degree in taxation. Working with an attorney can afford attorney-client privilege for matters discussed if they establish a so-called Kovel Agreement, wherebythe taxpayer hires a tax attorney who, in turn, engages the services of a tax accountant to prepare the returns.
- CPA: A person who has passed the Uniform CPA examination and is licensed as a CPA. A CPA may specialize in tax preparation and planning.
- Enrolled Agent: This is a person who passed the Special Enrollment Examination and has completed continuing education courses. Like attorneys and CPAs, an enrolled agent has unlimited representation rights before the IRS.
- Annual Filing Season Program Participant: This individual is not an attorney, CPA, or enrolled agent but has completed the IRS’s Annual Filing Season Program. Such a person has limited representation rights before the IRS.
- PTIN holder: This person is not one of the above but has obtained a Preparer Tax Identification Number (PTIN) to file tax returns this filing season. This professional has limited representation rights before the IRS.
Check a preparer’s credentials, including whether they have a valid PTINfor this filing season, through the IRS Directory of Federal Tax Return Preparers.
Save and Prepare Your Taxes Yourself
Hiring a professional to do your taxes costs money. If you want to save some cash, it may make sense to do your taxes yourself. Some of the options below are free:
- Paper Return: This is the traditional way to file your taxes. You can print the forms, crunch the numbers, and fill everything out by hand. Or you can fill out the forms online and print them out. Don't forget to sign your forms, submit your supporting documents, and mail them off. Your tax return must be in an envelope and post-marked by the due date to be considered on time.
- Tax Preparation Software: You can use apps or special software designed to help you prepare your taxes. Preparing simple returns is often free. Once completed, the forms are sent directly to the IRS. More complicated returns may require you to pay a fee.
- IRS Direct File: This is the IRS's pilot program, which allows individuals in certain states to file their taxes directly with the IRS for free. It is open to people who lived in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State, and Wyoming in 2023. The service is only available for the 2023 federal tax return. As such, you cannot submit your state tax return through Direct File. You can check your eligibility here.
How Much Does It Cost to File Taxes With a CPA?
In 2021 (latest information), the average cost of hiring aCPA to prepare and submit aForm 1040and state return with no itemized deductions was $220, while the average fee for an itemized Form 1040 and a state tax return was $323. Costs rise as the complexity of a return increases.
How Much Does It Cost to Do My Own Taxes Online and E-File?
Many online software systems like TurboTax offer free versions for federal tax returns. More complicated returns may cost over $100 or more, depending on the complexity of the return.
What's the Difference Between an Accountant and a Tax Preparer?
The difference in cost between an accountant and a tax preparer depends on the individual. Because a certified public accountant provides financial services beyond tax preparation, they may be more expensive than hiring a tax preparer to file basic taxes.
The Bottom Line
More than half of American taxpayers seek professional help preparing and filing their electronic tax returns. Before you choose a preparer, ask for a quote on the fees you’ll be charged. Consider the preparer's credentials and level of expertise if your return is unusual or complicated.
