How Much Does It Cost to File Taxes?

FT Contributor
$100 bills sit on top of a tax return.

Without a doubt, tax season is a stressful time of year. In addition to determining whether you’ll owe the federal and state government or expect a return, you have to decide whether you’ll file taxes by yourself or go through a professional.

With so many tax preparation choices, how do you pick the right one? And specifically, how much does it cost to file taxes if you decide to work with a tax preparer?

What Is the Average Fee for Tax Preparation?

Based on tax preparation data compiled from the 2018 tax year by NATPTAX, the average cost of tax preparation regardless of the fee structure was $216.31. But when you dig deeper, the average hourly rate was $126.43. However, return customers tended to receive at least a $10 discount on their filings as compared to first-time filers.

Note that prices may vary widely. While tax software and online options tend to feature a fixed cost — not including the amount you’ll pay if you file and find you owe taxes — working with individual tax preparers is different.

What Impacts the Cost of Tax Preparation?

Specifically, you’ll find that the price fluctuates based on the experience level of your tax preparer, your location, and their preferred fee schedule. Some preparers charge a flat price based on the complexity of your taxes while others opt for a base fee plus an hourly rate, and others simply charge by the hour.

What Contributes to the Cost of Hiring Someone to Do Your Taxes

So, why do the costs vary so much between tax preparers? The short answer is the experience level of your preparer and your personal tax situation. While we can discuss these two factors separately, it’s important to note that they do go hand in hand. If you have complex tax issues, you wouldn’t want to hire someone who’s inexperienced in that regard.

Tax Preparer Experience

It can’t be understated that you very often get what you pay for when it comes to a critical service like tax preparation. The wrong professional filing your taxes could at best cost you more in taxes than you would have paid or at worst expose you to fines and penalties for underpayment and late payments.

If you have a myriad of financial scenarios that need to be managed, hiring an experienced tax preparer should be your top priority — even over paying a lower price. A qualified tax preparer will help reduce your overall tax burden and even outline potential deductions or credits that you can legally use. And in many cases, tax preparation chains provide audit support if the federal or state revenue service audits a filing managed by them.

Your Tax Situation

There are plenty of people — even with complex tax situations — who opt to file their own taxes. But this might not work for everyone. If any of the following apply, you should consider hiring a professional tax preparer.

Lack of time

It’s not impossible to file taxes by yourself, but if you don’t have a few hours to sit down and focus, or haven’t organized your receipts and documentation, then you should hire a professional.

Complex scenarios:

Whether you invest in the stock market, own real estate, regularly donate to charities or have your own business this will make your tax situation complex. For all of the above, you may need to file more schedules as compared to a simple tax scenario that only requires filing a 1040 EZ.

Itemized deductions and life events:

Traditional tax returns allow for standard deductions. But if you believe you could save more by itemizing, you should consider hiring a professional. Likewise, major life events such as marriage, divorce, or having a child will change your tax situation.

Avoid Scams and Illegal Charges

How can you avoid getting scammed when you file your taxes?

Confirm Your Preparer Is Qualified

First, only work with qualified tax preparers. In the United States, this is limited to tax lawyers, certified public accountants (CPAs), and IRS agents. The best way to avoid being scammed is to confirm that your tax preparer is credentialed and listed on the Tax Preparer Registry.

Franchise Tax Preparers

If sourcing an independent CPA seems overwhelming, consider using a franchise tax preparer. This includes services such as H&R Block, Jackson Hewitt, and Liberty Tax. These nationally recognized tax firms have accredited tax preparers, transparent pricing, and they often provide guarantees in the event you’re audited.

Don’t Fall for Phone or Email Scams

These days scammers are more aggressive, using telemarketing and email phishing scams to con unsuspecting taxpayers. Usually, they ask you to confirm your Social Security number or provide a debit or credit card to make a payment under the threat of arrest. Note that the IRS does not contact consumers through phone or email to collect a debt.  

Mind the Fees and Claims

Even though fees vary between preparers, there are still a few red flags you should watch. A preparer whose fees are also based on the total value of your potential refund should be avoided. Likewise, a preparer who claims they can guarantee large refunds for all of their clients should give you pause. Each person’s tax situation is different, and consistently large refunds across an entire client portfolio is usually a sign that a preparer is cutting corners.

How to Get a Better Deal on Tax Preparation

There are still ways that you can save money the next time you file a return.

File Yourself

If your tax situation isn’t too complex or you’re very organized, you could save money by filing your taxes yourself. Even with tax preparation software or websites, your final fees — not including potential taxes you might owe — will be cheaper than working with a professional tax preparer.

Comparison Shop

Keeping in mind that you need to confirm a preparer is certified, there’s nothing wrong with shopping around. Even in the same city or town, prices can vary dramatically.

Ask for a Discount

While it’s not always common to get a discount if you’re a first-time customer, it doesn’t hurt to ask. Often if you commit to being a return customer, your preparer will be more willing to give you a break.

Don’t Delay

The closer you get to April, the more you might pay to file your taxes through a professional. Instead, try to file as soon as you receive all of your documentation at the beginning of the year.

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