How much money should you charge for preparing tax returns? If tax season is coming up, should you raise your fees as the deadline approaches?
Individuals and small businesses know they can do their own taxes with cheap software, but many wisely choose not to go that route. Prudent folk don’t wish to commit any errors in filing their own tax returns because the consequences can be dire.
That’s where you come in if you’re a CPA. When individuals and businesses want a tax return prepared right the first time without any mistakes made, they’re likely to hire a CPA. People view CPAs as experts.
If they didn’t regard a CPA’s expertise as valuable, they’d do their own taxes. Knowing this, it’s crucial to price your fees appropriately so you receive the compensation the labor deserves.
Your fees should depend on the service being provided
Tax preparation gathers many different services under one umbrella. For example, you might file a form 1040 for one client, but have to prepare 10 forms for another client who has a large investment portfolio.
You could serve individuals with a 1040 form and businesses with a Schedule C. You might have to prepare state returns in addition to filing federal tax returns.
As a rule, you should charge less for any service that can be done by a bookkeeper or lower-level accountant. Call around your area to find out the average local charge for those general services.
You’ll obviously request more for services only a CPA can perform. If you price your general services too high, people will just go to someone else who asks for less. However, if you don’t charge enough for specialized services (such as tax research), you’re cheating yourself out of deserved income.
To make your career profitable, there are two ways you can assess clients: hourly and flat rate. There are benefits and downsides to each.
Pricing your services at a flat rate per service
Many CPAs set their tax preparation fees at a flat rate per task because it’s easier for them and their clients. Recent studies have shown that 57% of tax professionals charge by the hour.
That’s down from 66% in three years. The trend of hourly billing is waning in favor of flat-rate billing. The advantages of charging a flat rate for each service include:
- Certainty about how much money you can or will make based on client load
- Easier estimated taxes
- Peace of mind for the clients because they know what your services will cost
Though there are many benefits to charging a flat rate, there’s also a danger: You might not charge enough to make it worth your time. Here’s how to charge flat rates without compromising your worth:
- Determine your ideal hourly rate. Even though you’ll be charging per project, you need to start with a base hourly fee. This amount will be used to calculate the price of your services.
- Calculate the average time it takes for you to complete each type of service. This is where it gets a little tricky to charge by the hour. Some services entail so many variables that it’s difficult to gauge time.
- For example, preparing tax returns for two small firms that have identical tax situations won’t necessarily take the same amount of time. One business might come in well organized and require only a few itemized deductions, but the other might feature a long, disorganized list of deductions you’ll have to sift through to ensure they’re valid.
- If you’re going to charge a flat fee, you need to know which variables will increase the cost of basic tax return preparation. The list will take time to draw up. If you’ve worked for an accounting firm, you can probably use your memory to generate a good starting template. If you’re self-employed or running your own business, you’ll have to create the list from scratch.
- Use your target hourly rate to determine how much you should charge for each service. For example, say your target salary is $100/hour and it takes you an average of 2 hours to prepare a tax return for a self-employed individual. You should charge a minimum of $200 for the service … with the stipulation that other accountants in your area charge that much or less for a similar service.
Remember, you’re the expert. You have every right to charge full price for your services, even if other CPAs aren’t capitalizing on their skills.
Pricing your services at an hourly rate
If pricing your services individually seems too complicated, you can charge a flat hourly rate for any service you provide, instead. Keep in mind, however, that being a CPA means you’ve got expertise that standard financial accountants won’t have.
That means you bring more value to your clients, so you should charge accordingly. When you charge by the hour, set a higher hourly rate for certain services that can’t be performed by an unlicensed accountant.
For example, tax research, preparing audited financial statements, and filing a report with the SEC are services that require expertise and command a higher fee.
One service that doesn’t require higher fees is filing state taxes. People can do that online with cheap software, and if they choose to file through the mail, it’s not complicated.
The benefit to your offering this service, however, is that you might get more clients who want to file state and federal taxes in one shot. The popular national tax prep companies that pop up in places like Walmart don’t handle state taxes. If anyone’s frustrated about this, they’re going to look for a CPA next year.
Consider a-la-carte pricing for additional services
Keep in mind that some individuals and businesses will hire you for tax filing, but they’ll expect additional services from you. Have an a-la-carte price for each of your services you may consider an add-on.
For example, a common add-on service is agreeing to represent the client during an IRS audit that results from the tax return you’ve prepared. Another service you can add to your a-la-carte list is providing clients with tax forms.
You can charge a few bucks per form or hand them out free to paying clients. You won’t make a lot of money, but you will generate rapport with your clients, and that’s worth a lot in itself.
Raising your fees as a CPA
The Journal of Accountancy recommends that CPAs regularly increase their fees. For regular clients, this requires a phone call or meeting to discuss the increase, or making a notation at the bottom of the first bill after the increase has taken effect. New clients won’t usually know you’ve raised your fees.
Maximize your income with Taxfyle
Whether you charge hourly or flat rate fees, there’s a limit to how much money you can make. There are no more than 24 hours in a day, and you can only prepare tax returns at a certain speed yet maintain accuracy.
When you onshore your tax prep services with Taxfyle, our network of U.S.-based certified CPAs and EAs will take care of everything so you can spend more time expanding your firm. Onshoring with Taxfyle puts the potential for creating a profitable business directly within reach … without all the hard work.
If you’ve always wanted to take on more business during tax season without having to hire more staff or work until 3 a.m., Taxfyle can help. Request a free demo today and we’ll show you how.