Finding a tax preparer can be a confusing process. They can have different professional designations, various levels of training and charge a wildly varying rate to prepare your income taxes. In order to effectively compare tax preparers, you must understand what it is that you are paying for. Here are the five most important variables to consider when deciding if a tax preparer is charging a reasonable amount for his or her services. (For related reading, also see 11 Most Common Tax Mistakes.)
TUTORIAL: Personal Income Tax Guide

Qualifications and Experience of the Tax Preparer
Expect to pay more to have your taxes prepared by a certified public accountant (CPA) than by a non-designated preparer. A CPA can handle complex tax situations that less-qualified preparers cannot. They are required to keep their tax knowledge up to date on an ongoing basis. Starting in 2011, the IRS will require all people who prepare income tax returns for money to go through a basic level of training and testing. If you have or are not certain whether you have complex tax issues, paying extra to benefit from the expert advice of an experienced CPA may save you from paying extra taxes and penalties down the road, in the event of an audit. Regardless of your tax preparer's professional background, always inquire about his level of training and experience.

Complexity of the Tax Issues
Part of the fee you will pay is for the research necessary to handle any unusual tax issues you may have encountered during the year, especially if a review of case law is required. If your return includes intricate taxable transactions, expect to pay an experienced CPA several hundred dollars plus an hourly fee for additional research. At the other end of the scale, simple returns that have only a few tax slips to enter may cost as little as $20 from a non-designated accountant.

Quantity of Tax Events
The sheer volume of taxable issues that need to be handled in your return may drive up the cost. For example, if you have retirement income, a part-time business, a rental property and a large stock portfolio, the preparation time will be longer than average, and so will the fee. To save the tax preparer time, and to get a more accurate quote for your return, list out all of your tax slips and other tax events, such as the operation of a business, buying and selling property or stock and charitable donations you have made during the year. This gives the preparer a more solid idea of the scope of your return. If the accountant finds out half-way through working on your return that you sold your vacation home during the year, expect your fees to go up.

TUTORIAL: Budgeting Basics

Bookkeeping Required
If you have a small business, a large investment portfolio or other ventures that have many transactions, you can expect to pay more if you take in to your accountant all of your source receipts rather than a neat, accurate summary of transactions. If the tax preparer has to dig through invoices, cash register receipts, bills and other papers in order to decide what is relevant to the business, and then categorize and add them all up, it adds significantly to the time spent preparing the tax return and, ultimately, to the price charged. If you want to save money on tax preparation fees, start by asking the preparer what format she wants to see the summary in, and which categories of expenses and revenues to use. Then, spend time carefully sorting and adding up source documents and give the preparer the summary along with the receipts filed by category.

Audit Support
Some tax preparation companies offer a guarantee of audit support. This means that, if your income tax return is chosen for audit, the tax preparer will represent you in front of the IRS for no additional fee. If you are audited, this can save you a substantial amount of money. However, you will pay more for the preparation fee to cover this risk. Think of it as insurance premiums. When comparing fees, consider which company offers this protection. (For related reading, also take a look at Audit Stories You Won't Believe.)

The Bottom Line
When you are searching for a tax preparer and are comparing prices, be sure to consider the value that you are getting from each one. Know what services they offer for that price, and what their expectations are of you to organize your tax information.

Related Articles
  1. Taxes

    Tax Breaks For Volunteering

    Your volunteer ventures could earn you some welcome tax deductions, along with the satisfaction of helping others.
  2. Taxes

    Six Ways Your Tax Preparer Knows You’re Lying

    Cheating on your taxes is asking for trouble. You might get away with it, but you’re playing with fire and likely to get burned.
  3. Taxes

    How & Where to File Form 1040 (And Which Version)

    All taxpayers need to know three things when filing a 1040: which form to use, how to file and where to file. After reading this, you'll know all three.
  4. Savings

    Should You Look at 529 Plans Outside Your State?

    529 savings plans are not restricted by geography. So if your in-state offering has high fees or poor investment choices, look elsewhere.
  5. Taxes

    The Purpose Of The W-9 Form

    The W-9 form provides key data your clients need if you're an independent contractor. Just be sure you're not really an employee who should fill out a W-4.
  6. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  7. Taxes

    5 States Without Sales Tax

    Learn about the five states that do not charge sales taxes and about other taxes the states levy instead in order to generate revenue.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  10. Taxes

    2016 Tax Code Changes Add Some Wiggle Room

    It's never too early to prepare for tax season. Next year features a host of tax law changes. Check our handy list to see which ones apply to you.
  1. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  2. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  3. Do 401k contributions reduce AGI and/or MAGI?

    Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). ... Read Full Answer >>
  4. Is homeowners’ insurance tax deductible?

    While your fire or homeowners' insurance premiums may be included in your property payments, they are nondeductible expenses, ... Read Full Answer >>
  5. Are Cafeteria plans subject to FICA, ERISA or FUTA?

    Cafeteria plans are employer-sponsored benefit plans that provide both taxable and nontaxable, or qualified, benefit options ... Read Full Answer >>
  6. Are IRS audits random?

    While the U.S. Internal Revenue Service (IRS) conducts some of its tax audits using random selection based on a statistical ... Read Full Answer >>

You May Also Like

Trading Center