THE COST OF A 1040

Here are some of the results of a recent study of the cost of having your tax return prepared done by the National Association of Tax Professionals.

 

The survey was administered electronically to about 11,000 tax pros, “a 50% stratified random sample of NATP’s membership population”.  A total of 1,604 participants completed the survey for an overall response rate of 15%.

 

(1) The national average cost for preparing a basic Form 1040, with no additional forms or schedules, is $114.00.

 

(2) The preparation fee varies based on the “credential”, or lack thereof, of the preparer.  The average fee (again for a basic 1040 with no additional forms or schedules) charged by an “unenrolled” preparer is about $100.00.  The highest average fee is, no surprise here, is charged by a CPA – $169.30 (170% of the fee charged by the “unenrolled” preparer).  The average fee charged by a CPA is actually $8.00 more than the fee charged by an attorney.  FYI - the average fee charged by an Enrolled Agent is $122.84 (123.4% of that charged by the “unenrolled”).    

 

I doubt very much that the quality of preparation and service and competency of the preparer and return provided to the client by a CPA preparer is 170% that of the quality and competence provided by the average unenrolled preparer.  If you ask me it is reversed – the quality and competence of the unenrolled preparer is 170% that of the overall quality and competence of the CPA preparer.

 

(3) The preparation fee also varies based on where you live. The average fee for the basic Form 1040 for my clients in New Jersey and New York is $115.54.  It is $113.86 for PA taxpayers, as well as those who live in Delaware, Maryland, Virginia, West Virginia, and Washington DC. 

 

The highest average fee - $135.21 – is charged by prepared in California, Hawaii, Nevada, and Arizona.  And you will be charged the lowest average fee - $97.79 – if you live in Colorado, Montane, North or South Dakota, and Wyoming. 

 

How much are you paying?

 

The complete survey is available free to all NATP members.  If you are a tax preparer and you do not belong to NATP please email me at rdftaxpro@yahoo.com with “NATP Membership Info” in the subject line and I will send you membership information.

 

Also – I have prepared a compilation of my thoughts on various issues of importance to the tax professional community.  If you are a tax pro and would like a copy, which is provided free as a pdf email attachment, email me with “IF YOU ASK ME” in the subject line and I will send it to you.

 

TTFN

 

 

 

 

 

 

 

 

 

A NEW GIMMICK

Have you seen H&R Block’s latest television commercial?  It once again “stars” the bow-tied buffoon from past years’ ads (is he supposed to be Henry or Richard?).  And, as usual, it makes no mention of H&R’s actual ability to competently prepare tax returns. 

H&R cannot get its clients the way competent and qualified independent prepares do, via word-of-mouth referrals from satisfied existing clients (neither my mentor nor I ever had to take out an ad of any kind to get clients).  It must rely on gimmicky ads.

This year’s nonsense has a new gimmick – Henry and Richard are giving away $1,000 to 1,000 customers each and every day!

$1,000 x 1,000 = $1 Million!  If you actually believe the company is going to give away $1 Million each day of the 3-month tax season, where do you think the money is going to come from?  Obviously it must come out of the fees charged to its “victims”. 

So not only does the fee for having your tax return prepared by H&R include the cost of the constant ridiculous ads, it now also must also cover $90 Million in prize money.  No wonder, as I have been telling you for years, Henry and Richard ain’t cheap.

Just because you are getting “fast food” service at the H&R offices does not mean you will be charged “fast food” prices.

You will certainly get better, more personalized service, and very likely pay less, if you have an independent tax professional prepare your returns.

 

RANDOM COMMENTS ON TAX PREPARATION

Here are some random comments on two topics based on the report I discussed on Monday that resulted from the GAO undercover operation.

(1) The report included some statistics.  One table – Individual Taxpayers’ Estimated Use of Paid Preparers, by Various Groupings, Tax Year 2011 – indicated that 59% of taxpayers who claimed the Earned Income Credit used paid preparers, while the percentage for taxpayers not claiming the EIC was 55%.

In discussing the various fees charged by the 19 “fast food” chain offices visited by the undercover agents, the report stated “Paid preparers provided various reasons for the amount of the tax preparation fee, including (1) the EITC form is the most expensive form to file . . .”

The rules for claiming the Earned Income Credit are indeed complicated, and it makes sense that many taxpayers who qualify, or think they do or may, turn to paid tax preparers for guidance. 

And it is true that, while it may not be the most expensive form to file (I would say Schedule C and Schedule D could cost much more – depending on the specific situation), because of the new overly-excessive due diligence requirements forced upon tax preparers, the fee for claiming the Earned Income Credit can be higher than the fees to file other forms and schedules.

The Earned Income Credit is in reality a federal welfare program.  Those who legitimately qualify for this credit are by definition lower income individuals.  Claimants may indeed truly need the additional monies provided by the refundable component of the EIC to properly care for their dependent children. 

Yet by distributing this welfare benefit via the Tax Code claimants are forced to pay a premium fee to tax preparers, very often truly justified because of the additional work involved, to request the benefit - money that they may not be able to afford to pay, or that could be better used elsewhere.

When applying for the traditional Aid to Families with Dependent Children welfare benefits are the families required to pay the county an application fee?  I think not.

The Earned Income Credit and the refundable Additional Child Tax Credit DO NOT belong in the Tax Code!

(2) The fee section of the report also states –

“Often, paid preparers either did not provide an estimate of the fees upfront or the estimate was less than the actual fees charged.”

This is really not an issue – and should not be a criticism of the otherwise flawed preparers.  The only possible criticism is that the less than honest preparers may have given a low-ball upfront estimate to get the business, knowing full well that they would charge more.

To be perfectly honest, most of the time it is very truly literally impossible to know how much the fee for preparing a tax return will be until after the tax return has been prepared. 

The final fee depends on the number of forms and schedules needed and the time involved to prepare the return, and is certainly impacted by the level of organization of the client taxpayer.

When I was accepting new clients, and a prospective client asked me “how much will it cost to prepare my tax return?”, the only true and honest answer I could provide was “between $45 and $500”. 

To be fair, I could probably be able to “tighten” my fee range and perhaps offer a basic “good faith” non-binding estimate of “between $100 and $250” by looking at the prior years’ returns and the current year’s “stuff” and asking a few questions.  And, of course, I could provide an actual legitimate “quote” for truly simple “short forms”, reporting only W-2 income, minimal interest income, and no deductions or credits.

FYI - in my 40+ years of preparing 1040s, 99.5% of all returns described by potential clients as “easy returns” have NOT been easy returns.

The best a tax professional can do is provide a potential client with a fee schedule, listing the minimum fee or fee range for individual forms and schedules, and explain the guidelines used in determining the fee.

TTFN