Taxes are inescapable, but there are some steps you can take to reduce your annual tax burden. One method of lowering your amount owing involves using a tax preparation professional to review your income statements and expenses to uncover tax deductions and credits for which you might be eligible.
A tax preparation expert can also recommend ways to reduce your taxes in future years. The result is more significant savings for your business or estate and a long-term tax strategy to help you reach your financial planning goals.
Having an industry professional prepare your taxes can help you avoid mistakes because this service provider will understand federal and state tax rules and their implications. This guide will examine tax preparation fees for 2022 and how these professionals determine how much to charge their clients.
What Is Tax Preparation?
Tax preparation is the process of calculating and filing income tax returns for individuals and businesses. It’s possible to prepare your taxes without assistance, but most companies and high-net-worth individuals will seek professional help.
Handling your taxes yourself typically involves using tax preparation software. There are sometimes fees associated with this software, which can reach about $200 on the higher end. It also takes the average entrepreneur about 21 hours to gather their tax documents and calculate their return.
Using a tax preparation service provider is the chosen path for many people and businesses because it simplifies the entire process. It can also reduce the number of potentially costly mistakes that appear on your return.
The Average Cost of Tax Preparation
How much do tax preparers charge? The precise amount depends on the individual and the type of tax forms necessary to complete the job. The average cost of tax preparation for certain forms includes the following:
- Form W-2 – An employer prepares Form W-2 to report the wages the company is paying a particular employee and the amount the business withheld in taxes during the year. A tax preparation professional charges an average of $69.75 for this work.
- Form 1040 without Itemized Deductions – Form 1040 is the employee side of the tax equation, as this is where workers report their annual incomes to the federal government. These forms determine if you’ll owe more on your taxes or receive a refund. A tax preparer charges an average of $220 for this service.
- Itemized Form 1040 with Schedule A – Schedule A is used to deduct expenses like medical and dental, interest, gifts to charity, theft losses, and job expenses on your tax return. Preparing these deductions will take a bit more time, so tax professionals charge an average of $323 for this service.
- Form 1099 – Form 1099 reports funds an individual receives for independent contractor work, rental property income, interest or dividends, or selling items on the side. The money you make from investments often falls under this category. The average cost of filing Form 1099 is $67.72.
- Form 1120S – Form 1120S reports a domestic corporation’s income, losses, gains, credit, deductions, and other tax information. These filings tend to be more complicated than personal income tax, so tax preparers charge an average of $903 for the service.
Geography also influences the average amount a tax professional charges, as those living on the West Coast or East Coast can expect to pay more than those in the South or Midwest. The preparer’s method for calculating these charges can also affect your final bill.
5 Methods Professionals Use to Determine Tax Preparation Fees 2022
It’s unlikely the national average is what you’ll pay for tax preparation services because various factors determine the final cost. Tax preparation fees are calculated in numerous ways, depending on how the service provider wishes to go about things. Possible options you might encounter include:
1. Set Fee for Each Form
Some tax professionals will have a pre-set fee for each form they prepare for you. This method is the most straightforward because you’ll likely understand your expenses from the moment you drop your tax forms off at the office.
2. Minimum Fee Per Client
A minimum per-client fee is a rate a tax professional sets based on the complexity of the return. The preparer will typically set this minimum rate before starting any work, and it can increase if unexpected issues arise or the return takes significant time to complete.
3. Value-Based Fee
A value-based fee determines the rate based on how much value the professional provides for the client. The preparer might charge more after saving the client significant money in this situation because the service holds a lot of value for the individual or business.
4. Hourly Rate
An hourly rate is a simple calculation based on how much time it took the preparer to complete the tax return. Returns that require more work will take longer and, therefore, cost more for the individual or business.
5. Set Fee for Each Item of Data
A set fee for each data item is often reserved for complicated returns that could include numerous deductions and lots of paperwork to examine. The preparer will set a price for each item that requires review in this situation to ensure they’re adequately compensated for the work.
Understanding how your tax professional will bill you can eliminate surprises regarding your tax documents. It can also help as you shop for the best service provider to meet your needs.
Get the Tax Help You Need
It’s usually advisable to seek a tax professional to assist with your taxes because even a tiny error could leave you with significant IRS penalties or missed deductions that will cost your estate or business. Learning about the value a tax preparation service provides helps ensure you make the right decision when tax season arrives.
Bogart Wealth provides tax preparation and optimization services for individuals and businesses in McLean, Virginia, and the Greater Houston, Texas, area. Our tax experts will ensure you aren’t leaving money on the table while providing transparent tax preparation pricing. Contact Bogart Wealth to speak with an expert about your tax preparation concerns.