What Is the Average Tax Preparation Fee?
Understand typical tax preparation fees. Learn what drives costs, what services are included, and how different preparers price their work.
Tax preparation fees are the cost of having a qualified professional prepare and file tax returns. Understanding these costs helps taxpayers budget and make informed decisions about their tax preparation needs.
Typical Costs for Tax Preparation
The cost of professional tax preparation varies significantly, primarily depending on the complexity of an individual’s tax situation. For a basic individual federal income tax return (Form 1040) where the standard deduction is claimed, the average fee is around $220. If the return involves itemizing deductions, which requires filing Schedule A, the average cost typically increases to approximately $323.
Returns that include business income or investments generally incur higher fees due to the additional forms and calculations required. For example, a Form 1040 with itemized deductions and a Schedule C for self-employment income might cost around $515 on average. Additional forms like Schedule D for capital gains and losses can add about $118, while Schedule E for rental income and losses may add around $145 to the total fee. For individuals with a combination of itemized deductions, self-employment income, capital gains, and rental income, the total average fee could approach $778.
Factors Affecting Your Tax Preparation Fee
Several specific variables influence the final cost of tax preparation services. The inherent complexity of a taxpayer’s financial situation is a primary determinant, as more intricate scenarios demand increased time and specialized knowledge from the preparer. For instance, individuals with multiple sources of income beyond standard W-2 wages, such as freelance earnings or gig economy income, often face higher fees. This is because these situations necessitate the calculation of self-employment taxes.
The number and type of specific tax forms and schedules required also directly impact the fee. A basic Form 1040 is the foundation, but the addition of forms like Schedule C for business profits or losses, Schedule D for investment gains or losses, or Schedule E for supplemental income from rental properties significantly increases the preparer’s workload. Each of these schedules addresses distinct income types, deductions, and reporting requirements, adding layers of complexity to the return.
Furthermore, whether state income tax returns are required in addition to the federal return can increase the overall cost. Most states have their own set of forms, rules, and filing requirements. Preparing state returns often involves adjusting federal taxable income for state-specific deductions or additions. The choice between taking the standard deduction or itemizing deductions on Schedule A also influences fees; itemizing often requires more detailed record-keeping and analysis of eligible expenses, which can increase the preparer’s time and, consequently, the charge.
Understanding Different Tax Preparer Types
Various types of professionals and services are available to assist with tax preparation, each with distinct qualifications and service models. Certified Public Accountants (CPAs) are licensed professionals who have met rigorous education, examination, and experience requirements. They offer a broad range of accounting services beyond tax preparation, including financial planning and auditing, and are often sought for complex tax situations due to their comprehensive expertise. CPAs generally command higher fees, with hourly rates ranging from $150 to $400.
Enrolled Agents (EAs) are tax professionals authorized by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service. EAs specialize in taxation and can handle all types of tax matters, including audits, appeals, and collections. Their expertise is focused on tax law, making them well-suited for intricate tax situations. Their fees are competitive, often falling between commercial services and CPAs.
Commercial tax preparation services, such as national chains, offer accessible tax filing options, often catering to individuals with simpler returns. These services employ preparers who may have varying levels of certification and experience, and they operate with a transparent fee structure. Volunteer tax assistance programs, such as VITA and TCE, provide free tax preparation services for qualifying individuals. These programs are staffed by IRS-certified volunteers.
What is Included in a Tax Preparation Fee
A standard tax preparation fee covers the foundational elements required to file an individual’s annual income taxes. This includes the preparation of the federal income tax return, Form 1040, which reports income, deductions, and credits. If applicable, the fee also encompasses the preparation of state income tax returns. Once prepared, the professional handles the electronic filing (e-filing) of both federal and state returns.
However, many services that extend beyond a basic Form 1040 are considered additional and incur extra charges. For instance, the preparation of complex schedules, such as Schedule C for business income and expenses, Schedule D for capital gains and losses, or Schedule E for supplemental income from rental properties, is an add-on service. Similarly, forms related to foreign income or assets, like Form 2555 for foreign earned income exclusion, command separate fees due to their specialized nature.
Services like audit support, where a preparer represents the taxpayer during an IRS examination, are outside the scope of the initial preparation fee and are billed separately. Tax planning advice, which involves strategic recommendations to minimize future tax liabilities, is also a distinct service and not bundled with basic preparation. Furthermore, if a return needs to be corrected after it has been filed, preparing an amended return (Form 1040-X) will result in an additional charge, which can range from $200 to $300.