Rate expectations: How much tax pros are hiking fees – and why
Preparers wrestle every pre-season with whether to raise rates. This year’s onslaught of the Tax Cuts and Jobs Act – with its additional forms and need for education – would seem to indicate a clear need for an increase.
Enrolled Agent Laurie Ziegler at Sass Accounting in Saukville, Wisconsin, anticipates a 20 to 25 percent bump in her firm’s base fee, “given all the education required to learn as much as possible about TCJA and also the changes to the forms as well as how those changes will present themselves in my tax software,” she said.
“Since I have already had about 25 new client meetings this year for 2018, I’ve raised minimum fees to $550 for new individual prep, up from $500, and minimum fees for business returns to $850, up from $750,” said Burbank, California, CPA Brian Stoner. “I am planning on raising fees for existing clients about 6 to 8 percent this year, anywhere from $40 to $100 based on the return price. In the past, I’ve raised about 4 percent to 5 percent.”
“For my basic 1040, I raised everyone this year and will try to hold to those this coming season. I figure my businesses, anything with 199A, will go up 15 to 20 percent, said Helen O’Planick, an EA at HELJAN Associates in Manchester, Pennsylvania.
O’Planick said she normally does a minimal $5 to $10 increase yearly, “but this year will hold to last year’s fees on those who no longer itemize. Other than that,” she said, “I'm thinking 5 percent on normal [returns] and a time fee for 199A. My quick assumption is this will be in the $30 to $50 area if the taxpayer is organized.”
“Our prep rates are all form-based” said John Dundon, EA and president of Taxpayer Advocacy Services in Englewood, Colorado. “In that there’ll be more forms required for even the most basic of returns, we anticipate overall price increases for our clients that currently have basic tax preparation needs.”
Nothing like this
“Based on my experience with firms in recent years, corroborated by experiences of my consulting colleagues, I would say that firms raise fees 3 to 5 percent every year,” said Marc Rosenberg, stressing that exact calculation of the raising of fees versus billing rates – especially in larger firms with partners – is complex. More and more firms are also billing clients a quoted value-based fee instead of hours times rates, he added.
Turns out some free-standing fees are actually falling, post-reform. “Due to the change in form structure, the amount I’m charging for the ‘new’ 1040 is less than I’ve charged in the past and what I’m charging for the new Schedules 1 through 6 is less than what I charge for Schedules A, B, D, and so on,” Ziegler said. “But if I have a client who requires the new 1040 and all six schedules, they’ll be paying about half again as much as a traditional 1040 cost in the past.”
Ziegler said her base fees have remained the same over the past few years “as I was anticipating tax reform with changes,” she said, “but never imagined anything like this!”
Hiking fees isn’t always annual: According to the latest “Tax Professional Fee Study” from the National Association of Tax Professionals, more than a third (37 percent) of respondents raise fees every year, 32 percent raise them every two years and 16 percent raise fees just every three years. (Overall average charge for an individual federal return is $216.31, according to the NATP survey.)
Reform was also largely federal, which can cause preparers to move fees in either direction. “Based on the fact that you’re going to have to have all the old information for many state returns … there’s going to be some more planning involved in each return,” Stoner said, adding that many people will use the standard deduction for federal and itemizing for state returns. Stoner’s consulting fees for planning meetings at year’s-end now begin at $400 and run around $275 an hour, he said.
“As I approach my last years of professional tax preparation I am refining the way I determine my fee,” reads this January’s mailer to clients of preparer Robert Flach, who also writes the Wandering Tax Pro blog. “Many of you have been telling me I have been cheating myself over the years, and you are right!”
Rather than up his hourly fee, he intends to “be more accurate in applying my [hourly] rate to the actual time spent preparing, checking and compiling … returns. As a result of the GOP Tax Act and the fact that many of you will no longer be able to itemize, the time spent in preparing a large number of returns will be less,” Flach wrote. “But this does not mean that my fee for the return will be substantially less, or any less, than in past years. I will closely track the actual time spent at my desk and charge accordingly.”
Flach said he anticipated making the same income, or only slightly more, for what will actually be less work. “Any true increase in a client’s fee, other than more accurate time-keeping, will be the result of a change in a client’s situation and not due to the GOP Tax Act,” he said.