Fixed or Flex? Tax Preparers Discuss Fees

Even the lights and the water connected to your office don’t matter as much as your fees, the fuel that keeps your practice running. Yet many preparers hesitate to shake up fee structures no matter what those structures depend on.

“Fees are based on our valuable time and what the market will bear,” said San Antonio Enrolled Agent James Berardi.

The national average fee for preparing a tax return, including an itemized Form 1040 with Schedule A and a state tax return inches up a bit each year, of course – but that includes a wide variation at the level of he individual preparer.
There are two sides of the debate: a simple and straightforward amount of cash in your hand versus a flexible, potentially higher fee that takes more of your attention to calculate.

“When the number of entries increase, additional time and complexity can make the computations and variables more lengthy,” said Eric Hansen of Hansen Accounting in Omaha, Neb.

“I do not charge a flat rate for forms,” said Paul Thompson, an EA at Premier Accounting & Tax in Virginia. “Our fees are based on an hourly rate involved in preparing the return and the complexity.”

“I have rates for entire returns based on the complexity, not [on] each form,” said James Perkins, CPA in Arlington Heights, Ill. “But I will also charge fees based on other circumstances, such as the client’s ability to pay and longevity with me.”

“I charge a flat fee for all forms and more for F, C, D and E,” said George Hodge of Hodge Accounting, in New Market, Ala. “I also charge hourly plus form fees for more complicated returns.” 

Accounting Plus Tax Solutions in Champaign, Ill., uses a forms-based fee structure “with a time/billing add-on when we have to do the client’s bookkeeping or extensive research to address a unique issue,” said president Daniel Setters.

“Almost all of my forms are fee-based. There are a couple of exceptions,” said Laurie Ziegler, an EA at Sass Accounting in Saukville, Wis. “The first being the 8949: The fee for that form is based on how many entries are on each page. The other exceptions are Schedules C and E. If the clients have all their information ready to go, I just charge the flat fee. If, however, I have to do sorting and totaling of receipts or other work to get it to that point, there is also a bookkeeping fee.”

‘Always done it that way’

Kerry Freeman, an EA at Freeman Income Tax Service in Anthem, Ariz., uses “a hybrid system” for pricing. “All forms have a starting price,” he explained. “Like the 1040 starts at $180 before any other forms or states are considered. The issue of complexity comes with each client: Those who use organizers or bring completed spreadsheets often pay less than those who are unorganized or just sloppy in how they deliver the information to me. Stock sales that require large amounts of input, for example, cost more than those taxpayers that use online downloads and send me Excel spread sheets for direct inputs.”

“My flat fees are often the 1040 and the schedule A only. I find that most of the letter schedules all require more time and more work,” Freeman added.

“For individuals, a 1040-EZ is a flat rate,” said Phoenix CPA Joanne Elsen, “while an individual’s return will begin with a minimum flat rate for a 1040 with a Schedule A and one state return. The fee for the individual 1040 will increase as more forms need to be completed due to the complexity of the client’s financial data and for forms required by the IRS for due-diligence support.

“For business returns,” Elsen added, “I have a minimum flat fee that is adjusted due to the complexity. In all cases, bookkeeping work and tabulating data is a separate fee.”

“We often joke about the person with the book or grocery bag, but that is more often the reality of many small-business people,” Arizona’s Freeman said. And “it’s not the newbies but the long-time business people who change preparers because the last one – often more of an old friend than a knowledgeable tax expert – has left the industry. So we are left with educating new clients that have ‘always done it that way before.’” 

Fee structures – even those built into tax prep software – can also change with needs. “Standard deduction returns are usually based on a flat fee. This year, however, I intend to use value-pricing on the forms,” said William Keats, an EA at Keats Tax & Financial Service in North Merrick, N.Y. “The more involved the forms, the higher the cost, such as schedules C, D, E, EIC or F, 6251s, 8959s, ACA forms, 3115s, 1041s, 1065s, 1120s and so on.”

Added Charles Grass, a CPA at Grass CPA & Associates in Renton, Wash., “Hours are tracked for comparison and considered when determining preparation charges. Adjustments are usually a round-down, but it extensive situations where time exceeds standard fees they’re rounded up.”

Avoiding sticker shock

Many accountants actually have trouble talking about fees with clients, according to Tom Wheelwright, founder of accounting firm ProVision. “Talk about fees early and often,” he said. “Clients don’t like surprises.”

Consultant Steve Erickson recommends clear talk with potential clients about fees to avoid sticker shock – and delayed or non-existent – payment later:

  • Stop quoting fee ranges, which set a client’s expectation for the maximum fee. For example, rather than say, “We estimate our fee will be between $10,000 and $12,000,” use the phrase, “We estimate our fee could be $12,000 or more.”
  • Initiate the conversation about fees with all of your clients. Draft a general letter about fees that you can include with your engagement letters.
  • Negotiate the scope of work, not your fees.
  • Use scheduled billing techniques. Get retainers, especially for new work. Use scheduled billing techniques for larger engagements (i.e. 30 percent now, 30 percent in one month, 30 percent the next month and 10 percent due upon delivery of the product) to mitigate your risk.
  • Call before sending an unexpected bill.
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