What is the Average Cost of Tax Preparation?

How Much Does Tax Preparation Cost?I just ran across a bit of interesting information on the cost of tax preparation from the National Society of Accountants. According to their biennial survey, the average tax prep fee for an itemized Form 1040 with Schedule A plus a state tax return is $229. For a Form 1040 and state return without itemized deductions, the average price drops to $129.

Update: Be sure to check out this recent post from GetRichSlowly with tons of additional data on tax preparation costs for 2012.

Having used TurboTax myself for years, I’m convinced that the vast majority of people can do the job themselves (and just as accurately) for much less money. Of course, if you’ve had an overly complex year, or just don’t want to spend the time on it, a tax preparer could be a good idea.

Keep in mind, however, that these prices all assume that you’ve already compiled the necessary paperwork. Speaking from experience, this can be a huge time suck. Thus, even if you do end up hiring a pro, you might not save as much time as you’d think.

Average Costs for IRS Tax Form Completion

For those of us with more complex returns, here’s a rundown of average costs for other IRS tax forms:

  • $212 for Form 1040 Schedule C (profit or loss from business)
  • $551 for Form 1065 (partnership)
  • $692 for Form 1120 (corporation)
  • $665 for Form 1120S (S corporation)
  • $415 for Form 1041 (fiduciary)
  • $2, 044 for Form 706 (estates)
  • $584 for Form 990 (tax exempt)
  • $58 for Form 940 (federal unemployment)

Tax prep fees also vary regionally, so the above average aren’t necessarily applicable depending on where you live. The lowest costs are in the “East South Central” region (AL, KY, MS, TN) where a Form 1040 with a Schedule A and state return averages $137. The most expensive region is the Pacific (AK, CA, HI, OR, WA) at $292.

Source: National Society of Accountants

33 Responses to “What is the Average Cost of Tax Preparation?”

  1. “I’m convinced that the vast majority of people can do the job themselves (and just as accurately) for much less money..” Sorry to say this, but it seems you live in protected isolated world.

    The average person hates to read technical books (especially law), do math and forms scare them.

    It astonishes me the number of people who “think” they know tax laws until they actually compare their work to a professional tax person. Very few people actually do their own tax returns correctly. They miss all kinds of deduction, credits and non taxable income.

    When a tax professional gets a hold of them, some of them can find more deductions and tax savings that what an non professional can do. Bingo. That fee, just paid for itself. In addition, the professional might help you calculate out how to withhold and pay in throughout the year, so your not paying in when you file your tax returns. And that was free work. Score again.

    Sounds like having a tax professional on your side, is much smarter and wiser decision than doing everything on your own.

  2. Years ago you could find the average refund for a professional prepared return and that of one self prepared. Now you can’t. Back then the difference was approx. $2,000 more for professionals. The IRS does not allow professionals to advertise this fact. Any idea what It now is?

  3. Anonymous

    Depends on the person and how much are you willing to read and dig, how much you like math and doing various scenarios, and that goes beyond jut looking at software questions.

    Turbo tax users do not always capture everything. I have seen it many times.

    Think of this. When I remodeled my home, my ego was pretty big thinking I can do this myself, why hire a professional? Oh, I did the job and got it done right, and learned a ton while doing it. However, it took me forever, with tons of frustration, and I made a ton of mistakes while doing it, and listened to some really bad advice from many self proclaimed experts.

    After I was done, I went to job sites and watched various trades work. Some of these guys are phenomenal. They are faster and more accurate than I ever was.

    As is most things in life. The more you do something, the better you are going to get at it.

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  14. Anonymous

    By the way, I feel like the other person who said that “we shouldn’t have to pay for our taxes to be done”. I have NEVER paid. Every year I was eager to get the next years fed. and state pamphlet for changes and read it through. I use the free filing on the IRS website. It may take a little more time, but its FREE! Just what I want to pay.

  15. Anonymous

    I am thinking of starting a new tax preparation service because I have done taxes free for relatives. One relative went to a large franchise and had to pay $400 for a 1040A. I did it the next year for her. She was single, had two children, a low gross income and wanted the EITC. It was simple! Many taxpayers are being taken a ride like that professor. I do understand that these same individuals want their returns yesterday which means I’ll definitely have to hook up to e-filing. Have to make the customer satisfied. I’m going to charge less. I do them because they don’t have a PC, either.

  16. Anonymous

    Folks, if you have senior parents that still file their own returns, see if you can have the returns checked over. We find that often older folks think they can handle today’s tax laws when in fact they just haven’t kept up. Or they just aren’t as sharp as they used to be.

  17. Anonymous

    Truilla – yep, you ARE getting taken for a ride. We charge less than $100 for a 1040A here in Tampa, including free e-file. ($45 more, though if you have an average state return.) Check out word-of-mouth referrals for those that are satisfied and have stayed with a preparer for years. Avoid those that claim their preparer somehow got them HUGE refunds. Big red flag there.

  18. Anonymous

    I paid my tax preparer $400 for a 1040A. He always makes a big production of telling the secretary to ONLY charge me this much, since I am “low-income” (I am actually a middle-income retired professor, but this is a town where all the guys are “in finance” and work for Chase, BoA, etc. and the women work hard to spend the money (except for me as I’m divorced.) Am I getting taken for a ride?

  19. Anonymous

    I’ve been doing tax returns for years. However with the increasing fees for tax preparers, charging the average prices seen on this sight doesn’t make us rich by any means. Also keep in mind that with franchises they have to pay employee wages and benefits too. As of this year most tax returns have to be efiled through a tax program. Efiling fees are expensive. Just to efile my own and purchase the program costs over $100. Not everyone can file online for free. Plus you pay to file both fed and state. I charge a flat fee for individual returns and more if business or other type of return. By the time I figure in overhead costs (lights, paper, ink, filing fees, etc.) I maybe make $10 per return. I do them because I enjoy doing them. If you want to do them yourself, go ahead. However with all the code changes and other issues involved I personally am considering dropping tax preparation. It’s becoming too much of a headache.

  20. Anonymous

    I paid $1200 for a CPA to do my taxes the first year I started my medical practice (1990). What a gigantic waste. I’ve done it every year since then with turbotax. My returns have gotten much larger than they were twenty years ago. I had over 650 1099-B transactions alone this year! The actual problem is the tax code. It is vastly more complex than it should be. Our politicians are morons for allowing it to become this complex, and the tax preparers out there relish the complexity because it causes most Americans to pay someone to do their taxes (with software similar to turbotax without all the insane questions). Change this absurd tax code. It is an abomination. The only people who benifit from it are paid tax preparers. Every American should be able to prepare their own taxes.

  21. Anonymous

    Wow I can honestly say that after reading all these post I am definetly going to a CPA for my return this year! My brother in law paid 235 at one of the major tax prepare companies for a 1040EZ. Last year I bought a house, had a kid, paid interest on student loana and received unemployment so I am definetly going to a professional CPA. Hopefully I can find one as professional and honest as Just Sayins husbands!

  22. Anonymous

    Assuming most people have a simple tax return is just wrong. The complexity of tax code has complicated a great majority or american tax situations. Baby boomers getting ready to retire brings up a lot of tax issues, and that is a good section of our population. Add in business owners, investors, death estates, and the endless individual situations that life brings at people and it does get complex. Yes, someone can look up all the answers, but have you tried to ready a regulation and apply to forms? Good luck, experience goes a long way. Also CPAs & EAs have some much experience with dealing with the IRS and state agencies that it’s worth what you pay for the services. So I will reverse the original comments and say for the cost you are crazy not to be working with an expert.

  23. Anonymous

    OK, I know this will probably not be a popular post, but here goes.

    My husband is a CPA. While I know there are many folks that have simple returns, it’s not always about the complexity of the return.

    First, if you have a reputable tax preparer (CPA or EA), they should be telling you when you no longer need them to prepare your return. My husband is not afraid to tell a client they can do it on their own (if that’s the case). He gives them a watch list of items. If any of these items apply to them in the future, that’s when they should come back.

    The clients are happy that their CPA is saving them the tax prep fee. In turn, they refer new clients because of the accuracy of his tax prep and our honesty about no longer needing his assistance. They know he is looking out for THEIR bottom line, not his.

    Second, and this is a BIG second, if you are preparing your return with off the shelf tax software, who will you turn to if you get audited? Let me assure you, I am not trying to scare anyone with the “audit scare tactic” and I am not saying that people can’t file an accurate return on their own. But, audits are in fact on the rise. You do not have to have a red flag on your return to be selected for an audit. But if you are, you will want representation.

    When a client comes into our office, we ask for a copy of the last two years returns. The reason? My husband will re-do the return and see if there is any discrepancies. We do this as a courtesy, and do not charge a “second look” fee. More times than not, if a client self prepared their return using off the shelf software, they missed deductions, therefore reducing their refund amount. We file an amended return and the client is happy they decided to have a professional prepare their return.

    On a side note: If you were sick, you might go to a website and see what’s wrong with you. I know I have. What if there was a FREE website that offered you a questionnaire that you could fill out with all of your symptoms, history etc., and then it spit out a diagnosis and a treatment plan? Would you do it INSTEAD of going to the doctor? After all, you filled out the questionnaire and nobody knows you better than you, right? But what if the questionnaire missed something important. Or it didn’t go deeper into your symptoms. You wouldn’t know that though. Same thing with off the shelf software or DYI online preparation. Just food for thought on that one.

    CPA’s and EA’s have to complete over 40 hours of continuing education EVERY YEAR to keep up with the current tax laws. If you have a simple return, a few W-2’s, etc., you should have no problems doing the return yourself. But if you have a more in depth return, rentals, Schedule C or an 1120, I highly recommend that you use a qualified, LICENSED tax preparer and AVOID kiosk and storefront tax preparation “services.”

    Happy Tax Returns!!

    PS: The reason this post is so late after tax season? We were busy amending returns that were not prepared by my husbands firm, no joke.

  24. Anonymous

    Most people believe the advertisements and are fearful of an audit. I have been doing my returns with turbotax since 89 and am confident of my filling out the returns accurately. It isn’t rocket science. But I have a leg up on the masses having calculated docking various vessels using shipwrights math using only a pencil. Taxes aint hard, people are led to believe it because the sellers have a vested interest in scaring them.

  25. Anonymous

    I paid $110 to get mine done through a CPA this year. My primary justification: My tax situation was a bit more complicated than the previous years.

    But also, it saves me time (I don’t have to keep track of tax laws, etc.) and gives me peace of mind. If I get audited, my CPA will back me.

    Plus, it’s only a little bit more in cost. If I bought TurboTax and paid for federal e-file and state e-file, I’m still spending up to $70. (Granted, it could be about half of that depending on my situation and needs.)

    If I wanted to save $40-$100, I would try harder to be frugal in other places of my life.

  26. Anonymous

    “Paying to have someone else fill out the form when you’re not even itemizing is just wasteful ”

    agreed. Anyone paying for help for a 1040 without itemized deductions is just plain lazy and/or stupid (but I bet most of them don’t get the extra property tax deduction).

  27. Anonymous

    Not everyone should do their own taxes, but hardly anyone does – we do keep up with tax law changes and read up on it right around this time of year every year – otherwise our taxes would take about an hour total.

    And how much money would you have to be leaving on the table, to make up for spending $229 every year to have someone else fill out your 1040A after you did all the work of tracking and documenting your deductions? Paying to have someone else fill out the form when you’re not even itemizing is just wasteful (plus, most people who don’t make enough to bother itemizing, probably qualify for free tax help if they seek it out.)

  28. Anonymous

    maybe Rosa. I pay for the second look b/c I’m just flat too busy to keep up with tax law changes (affecting us) myself! For most people, it’s easy enough to keep up with changes on irs.gov. (and before we had our business, and even before I was a CPA, I prepared my/our own taxes and never paid for a second look). I think people should take the time to do (attempt to do) their own taxes. BUT, if anyone with a business, investments, sale of home, or any other unusual items does not get a second look, they are doing themselves a disservice…they *think* they are saving a buck by doing it themselves, but in reality, most are leaving money on the table by not consulting a professional.

    I hope those who have been doing their own taxes for years keep up on tax law changes (or pay for a “second look” to have someone who does keep up with changes review their tax return). My in-laws have been (actually M-I-L) preparing their taxes on their own for years (they used to own a business, still have investments and an S-corp). As I was studying for the CPA exam several years ago, she thought she could talk taxes with me and “teach” me some things. As it turned out, she never kept up with tax law changes and has been using outdated rules/laws on many items. When I realized how grossly mis-informed she has become on taxes, I prayed that she never gets audited! (she was too stubborn to listen to me when I tried to tell her of some tax laws that affect their S-corp. She tried to argue with me “that’s not true!” even after I showed it to her in black & white! Some old people just get so set in their ways *sigh*).

    and we don’t fix our own cars b/c we KNOW we have no idea what we are doing there. I let the hubby do it once and he screwed it up so bad that we had to buy a whole new engine. We should all know our limitations 😉

  29. Anonymous

    Americans don’t do their own taxes for the same reason they don’t cook their own meals or fix their own cars – habit, laziness, and fear.

    My mom always has done her own taxes with a pencil, paper, calculator, and a big table to spread out all the papers – dealing with farm income, employment income, and being a small-business owner and an investor. She started teaching me how when I was 12. I’ve always done mine, and my partner does his the exact same way (but without the calculator – he’s better at math than I am).

    It takes a few hours, but most of that is assembling documents, which we would have to do for a CPA anyway.

  30. Anonymous

    Why can’t Americans do their own taxes? Because the federal Tax Code is out of control, that’s why. It’s gigantic and insanely complex, and it gets worse all the time. Nobody has ever read the whole thing. IRS workers are afraid to go into the same ROOM with it. –Dave Barry

    OK, the vast majority of people have simple enough lives, er, finances that they SHOULD be able to prepare their own taxes. But keep in mind that tax law changes EVERY year – and some changes effect even the most simple of folks…and then you end up with problems like this: http://finance.yahoo.com/taxes/article/109305/filers-confused-by-stimulus-credit?mod=taxes-advice_strategy

    I am of the opinion that if you do prepare your own tax return, you should AT LEAST send it to a tax preparer for a “second look.” I’m a CPA. I do our taxes, but since I don’t do taxes for a living, I send our taxes to a tax preparer for a second look (especially since we have a schedule C and all the other forms that go along with owning a business). The fee is much cheaper than “tax prep” – and I am confident that all tax law changes that effect us have been accounted for (because the tax prep software does NOT catch EVERYthing, not even Turbo Tax. And if you don’t prepare taxes for a living, it is easy to miss something – and that something could mean a big difference in your tax refund!).

    I am also of the opinion that you should not trust a tax preparer firm with kiosks in Walmart or the mall. You know who I’m talking about. Those firms hire anyone off the street, give them bare bones training, and then put them to work. One of these tax preparation firms messed up my grandparents’ returns for two years in a row (two different “tax preparers” hired by the same firm made equally ignorant mistakes). Now, my grandparents are very simple folks and returns for seniors don’t get much easier than theirs! We corrected and submitted amended returns to get the money for them that they should have gotten in the first place. They SHOULD have pressed for a refund from the tax prep firm…but they learned not to ever use them again.

    The hardest thing in the world to understand is the income tax. –Albert Einstein

  31. Anonymous

    It is amazing how much it costs to do a simple tax return through a paid preparer or CPA. Whenever I look through Entrepreneur Magazine’s fastest growing franchises list and see tax prep franchises consistently near the top, it pains me – especially when I consider how simple the majority of the tax returns these franchises prepare could be done for free on TurboTax and other services. The IRS has a list of free prep services for people with simple returns at http://www.irs.gov/efile/article/0,,id=118986,00.html

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