What is the Average Cost for Tax Preparation? – Answered

Getting a quote for tax preparation is often the first step before hiring a tax professional. The challenge is knowing whether that quote is reasonable.

The average cost for tax preparation reflects the type of return you’re filing, the forms required, the complexity of your finances, and the time needed to prepare an accurate return. That’s why two taxpayers with similar financial situations can still receive very different quotes.

This guide breaks down the average cost for tax preparation, the factors that affect pricing, and what you can expect to pay based on your filing situation.

TL;DR – Average Cost for Tax Preparation

The average cost for tax preparation can vary quite a bit depending on your tax situation. A basic individual federal tax return (Form 1040 with schedules) costs about $236 on average.

If your return includes self-employment income, rental properties, investments, or business taxes, you can generally expect to pay more because these returns require additional forms and supporting documentation.

Factors that Impact the Cost for Tax Preparation

The average you pay for tax preparation depends on the complexity of your tax situation, the type of return you’re filing, and the professional you choose to prepare it.

Here are the biggest factors that influence the cost:

Complexity of Your Tax Return

The more information your tax preparer has to review, the more time your return takes to complete. Tax returns with self-employment income, investments, rental properties, multiple income sources, or itemized deductions typically cost more than straightforward returns.

Type of Tax Return

The forms required for your tax return also affect the price you need to pay. For individual tax returns, the cost is generally lower than for business returns for LLCs, partnerships, or corporations. The latter’s business filings often involve additional schedules, financial records, and compliance requirements.

Tax Professional You Hire

There are different tax professionals who charge different rates based on their qualifications and experience. Take, for example, a CPA or tax attorney generally charges more than a tax preparer or tax software, especially for complex tax situations that require specialized advice.

Organization of Your Financial Records

Keeping your financial records organized can help reduce tax preparation costs. When your income, expenses, and supporting documents are complete and up to date, your tax professional spends less time organizing your information before preparing the return.

Additional Tax Services

If you’re just preparing and filing a tax return, it will generally cost less than a service package that may include other services like tax planning, catch-up bookkeeping, or ongoing financial support. Based on your requirement, your cost will vary.

Average Cost for Tax Preparation by Return and Filer Type

The type of tax return you’re filing has one of the biggest impacts on preparation costs. Personal tax returns generally cost less than business returns, while corporations tend to pay the highest fees because of their additional reporting and compliance requirements.

The figures below are industry averages and may vary depending on your location, the complexity of your finances, and the tax professional you choose:

Individual and Personal Tax Returns

Most individuals can expect to pay between $200 and $600+ for professional tax preparation.

Most individuals file their federal income taxes using Form 1040. If your return includes only a W-2, the standard deduction, and a state return, preparation costs generally fall at the lower end of the range.

Additional schedules and forms can increase the fee. For example, Schedule A is used for itemized deductions, Schedule C reports self-employment income, Schedule D reports capital gains and losses, and Schedule E reports rental income and royalties.

Here’s what a typical range looks like:

Small Business, LLC, and Partnership Returns

If you own a business, you’ll generally pay more for tax preparation than someone filing a personal return. The cost depends on your business structure, the tax forms required, and the amount of financial information your tax professional needs to review. The industry average is around $600-$1,500.

Most sole proprietors typically report business income and expenses on Schedule C, which is attached to Form 1040. When it comes to partnerships and multi-member LLCs, they file Form 1065 and issue a Schedule K-1 to each partner, making the return more involved to prepare.

Let’s understand with the table below:

Corporate Tax Returns

Corporate tax returns usually take more time to prepare than personal or small business returns, which is reflected in the cost.

S corporations file Form 1120-S, while C corporations file Form 1120. As the business grows, factors such as payroll, fixed assets, shareholder reporting, and multi-state operations often add to the preparation time and, in turn, the overall fee.

Corporate tax filing typically costs:

How Do Different Tax Preparer Types Charge for Their Services?

Tax preparation fees are usually based on the services you need and the way a tax professional prices their work. Depending on the provider, you may receive a fixed quote for your tax return or pay based on the time and expertise required to prepare it.

Here’s how different tax preparers charge:

Mistakes That Make Tax Preparation More Expensive

Certain mistakes can make tax preparation more time-consuming, increasing the amount you pay. Staying organized throughout the year can help keep preparation costs under control.

Here are a few common mistakes that can increase tax preparation costs:

• Falling behind on bookkeeping: When your books aren’t up to date, your tax preparer may need to categorize transactions, reconcile accounts, or correct errors before they can even begin working on your return. That extra work usually comes with additional fees.
• Providing incomplete or disorganized records: Missing income documents, receipts, or expense records means your tax preparer has to spend extra time following up or sorting through the information before they can start preparing your return.
• Choosing the wrong tax professional: Every tax preparer has different areas of expertise. If your return involves self-employment income, partnerships, or corporate taxes, working with someone who regularly handles those returns can save time and help avoid unnecessary revisions.
• Overlooking tax planning: Many taxpayers focus only on filing their return each year. Reviewing your finances in advance gives you more opportunities to manage deductions, estimated tax payments, and other decisions that could affect your tax bill.

How Can AccountsBalance Reduce Your Average Cost for Tax Preparation?

Preparing your tax return is much easier when your bookkeeping is accurate throughout the year. Clean, organized financial records reduce the amount of time your tax professional spends sorting transactions, correcting errors, or requesting missing information, which can help keep preparation costs under control.

AccountsBalance helps you stay tax-ready by:

• Keeping your books up to date: We reconcile your financial records every month, so you don’t have to scramble to organize months of transactions when tax season arrives.
• Providing a dedicated bookkeeper: You’ll work with a dedicated professional who understands the needs of agencies, SaaS companies, eCommerce businesses, coaches, and other online businesses.
• Managing complex financial records: Our team is experienced with digital payment processors, multi-channel sales, and other financial workflows common in online businesses.
• Delivering monthly financial reports: Receive your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement by the 15th or 20th of each month, so you always have up-to-date financial information when you need it.
• Reducing bookkeeping cleanup before tax season: With accurate books throughout the year, your tax professional can spend less time organizing your records and more time preparing your return. 

If you’d like to spend less time preparing for tax season and keep your business tax-ready year-round, schedule a call with us.

Frequently Asked Questions (FAQs)

Here are answers to some of the most common questions about tax preparation costs.

Are Tax Preparation Fees Tax Deductible?

For businesses, tax preparation fees are generally deductible as an ordinary and necessary business expense. This includes self-employed individuals filing Schedule C, rental property owners filing Schedule E, and other businesses.

For individuals filing personal tax returns only, tax preparation fees are generally not deductible on federal tax returns under current tax law, although some states may allow a deduction.

What is the Difference Between a CPA and an Enrolled Agent?

A Certified Public Accountant (CPA) is a state-licensed accounting professional who may provide accounting, auditing, financial reporting, and tax services. An Enrolled Agent (EA) is federally licensed by the IRS and specializes mainly in taxation.

Both can prepare tax returns and represent taxpayers before the IRS, but CPAs often offer a broader range of accounting and advisory services.

Does the Average Cost for Tax Preparation Vary by State?

Yes. Tax preparation fees often reflect the local cost of doing business, so prices tend to be higher in areas with a higher cost of living. State tax filing requirements can also affect the total cost, especially if you’re required to file returns in multiple states.

What Makes Tax Preparation Cost More One Year Over the Next?

Your tax preparation costs can increase if your tax situation becomes more complex. Common reasons include:

• Starting a business
• Adding new income sources
• Selling investments
• Purchasing rental property
• Filing tax returns in multiple states

You might also see an increase in preparation fees if your tax professional updates their pricing or when you need some additional services, such as tax planning, business bookkeeping, or audit support.

Conclusion

The average cost for tax preparation depends on the type of return you’re filing, its complexity, and the tax professional you choose. What you need to do is keep your financial records accurate and organized throughout the year so that when tax season arrives, you have a more manageable process and reduce the amount of cleanup needed before your return is prepared.

AccountsBalance helps agencies, SaaS companies, eCommerce businesses, coaches, and other online businesses stay tax-ready with dedicated monthly bookkeeping. You’ll receive your financial records every month, along with personalized support from a dedicated bookkeeper who understands your business.

If you’re looking to simplify your bookkeeping and stay prepared for tax season, schedule a call with us.