How Much Does It Cost to File S Corp Taxes?

S Corporations avoid double taxation because profits and losses pass directly to owners’ personal income. To maintain this status, S Corporations must file Form 1120-S, the U.S. Income Tax Return for an S Corporation, with the Internal Revenue Service (IRS). This article explores the costs associated with preparing and filing these tax returns.

Costs for Professional Tax Preparation Services

Certified Public Accountants (CPAs), Enrolled Agents (EAs), or specialized tax preparation firms offer expertise in preparing Form 1120-S and the accompanying Schedule K-1s, which detail each shareholder’s share of income, deductions, and credits. The average cost for a CPA to prepare and file Form 1120-S is approximately $903. For a basic S Corp tax return with well-organized records, fees might range from $500 to $2,000, while more complex situations could exceed $2,500.

Professional fees are influenced by several factors, including business complexity. Businesses with high annual revenue, a large volume of transactions, intricate asset structures, or those requiring detailed inventory management often incur higher preparation costs. The need to identify and apply specific industry-related deductions or credits can add to the time and effort required by the preparer, thereby increasing the overall fee. Incomplete or disorganized financial records can substantially raise costs, as the professional must dedicate extra time to sorting and categorizing data before tax preparation can begin.

The number of shareholders also affects professional fees. Each shareholder necessitates a separate Schedule K-1, and an increase in the number of these forms and the complexity of their allocations directly translates to more preparer time. Some firms may apply an additional charge for each Schedule K-1 beyond a certain included number, such as $50 per additional K-1. If an S Corporation operates in multiple states, additional state income tax filings become necessary, with each state return potentially adding around $200 to the total cost.

Geographic location also affects professional tax preparation fees. Costs can differ considerably based on the local cost of living and prevailing market rates in various regions, with urban areas generally commanding higher fees than rural ones. Recent years have seen an upward trend in tax preparation fees due to inflation and a shortage of accounting professionals. The scope of services requested also impacts pricing; basic tax preparation is distinct from bundled offerings such as comprehensive tax planning, payroll reporting, sales tax compliance, or general business consulting.

Costs for Tax Preparation Software

Commercial tax preparation software designed for business tax returns is a viable option for S Corporations. Software solutions specifically cater to Form 1120-S, providing guided assistance for business owners. Prominent examples include TurboTax Business and H&R Block Premium & Business, which allow users to prepare and file their S Corporation returns.

The cost of tax preparation software varies based on the features included in the package. Essential functionalities like e-filing capabilities, seamless integration with popular accounting software, and the ability to prepare state tax returns as add-ons typically influence the price. Some software options also incorporate audit support, providing guidance or representation in the event of an IRS inquiry. Certain software packages may bundle both personal and business tax filings, offering a comprehensive solution for owners.

The level of customer support provided by the software vendor also affects the price. Higher-tiered versions often include enhanced access to customer service, which may involve phone support, chat functions, or even direct professional assistance during the tax season. Many software providers utilize tiered pricing models, offering different versions such as basic, premium, or business editions, each with varying functionalities and corresponding price points. Some platforms provide year-round expert help, which can be included in the annual subscription fee.

For instance, H&R Block Business software for federal filings typically costs between $125 and $220, with state filing fees ranging from $0 to $49. TaxAct’s S Corp software is priced around $164.99 for federal returns, plus additional state fees. TurboTax Business online versions can start from $79, but comprehensive packages with expert access can exceed $700. Some reports indicate that fully prepared S Corp returns using TurboTax’s assisted services might begin around $1,749, reflecting the added value of professional oversight.

Costs for Preparing Financial Information

Beyond the direct expenses of tax preparation, S Corporations incur costs related to organizing the necessary financial data and records. Well-maintained and organized financial information can significantly reduce the time and cost associated with the actual tax preparation process.

Bookkeeping services are a component of these preparatory costs. Businesses may hire bookkeepers on an hourly basis, through a monthly retainer, or for one-time clean-up projects. Hourly rates for bookkeepers typically range from $11 to $35.58, with average rates often falling between $21 and $24.31 per hour.

For ongoing services, small businesses might allocate between $300 and $1,000 per month for outsourced bookkeeping, although this can increase to $2,500 monthly for more complex operations or higher transaction volumes. Engaging a bookkeeper ensures that financial records are meticulously maintained throughout the year, streamlining the tax preparation process and potentially lowering the ultimate fee charged by a tax preparer.

Another integral part of preparing financial information is the use of accounting software subscriptions. Platforms such as QuickBooks Online, Xero, and FreshBooks are essential tools for tracking income, expenses, and assets. These subscriptions, which typically range from $16 to $99 per month, generate the reports and data required for accurate tax preparation. While not direct tax filing fees, these tools are indispensable for managing the financial health of the S Corporation, providing the organized data that tax preparers or software solutions rely upon. Different subscription tiers offer varying functionalities, such as managing bills, tracking inventory, or supporting multiple users, allowing businesses to choose a plan that aligns with their specific operational needs.

For S Corporation owners who manage their own bookkeeping, the time spent organizing receipts, bank statements, and other financial documents represents a considerable, albeit non-monetary, cost. This dedicated effort directly influences the ease and efficiency of tax preparation, as a well-organized set of books reduces the need for extensive data compilation during tax season. Maintaining accurate and separate business books is a requirement for S Corporations, underscoring the value of either engaging professional bookkeeping services or investing in robust accounting software.