When it comes to filing your taxes, you have a few options. You can do it yourself using tax software, hire a tax preparer, or work with a certified public accountant (CPA). If you choose to work with a CPA, you may wonder what the average cost of tax preparation by CPAs is. In this post, we will explore the answer to this question and provide additional information on the topic.
Who Is a CPA?
A CPA is a professional who has passed the Uniform Certified Public Accountant Exam and is licensed by the state to practice accounting. They have specialized knowledge and expertise in areas such as tax law, auditing, and financial reporting.
What Does a CPA Do?
Tax preparation, financial planning, and auditing are just a few of the services that a CPA offers to both individuals and businesses. They can also offer advice on complex financial issues like investment management, retirement planning, and estate planning.
What Is Tax Preparation?
The process of preparing and submitting your tax return to the relevant government agency, such as the Internal Revenue Service, is known as tax preparation (IRS). It entails gathering all required records, such as W-2s, 1099s, and receipts, and computing your income, credits, and deductions.
How Much Does Tax Preparation by a CPA Cost?
The average cost of tax preparation by a CPA varies depending on many factors, including the complexity of your tax situation, your location, and the experience of the CPA. An average tax return for a CPA cost $564 in 2021, according to a poll conducted by the National Society of Accountants, and tax preparation costs on average $229 per hour.
Factors That Affect the Cost of Tax Preparation by a CPA
As mentioned above, there are several factors that can affect the cost of tax preparation by a CPA. These include:
- The Complexity of Your Tax Situation: If you have a complex tax situation, such as owning a business or having multiple sources of income, your tax preparation will likely take longer and cost more.
- Your Location: The cost of living and the demand for tax preparation services can vary by location, which can impact the cost of tax preparation by a CPA.
- The Experience of the CPA: CPAs with more experience and expertise may charge more for their services.
- The Level of Service You Require: If you need additional services, such as financial planning or investment management, the cost of tax preparation by a CPA may be higher.
Additional Fees to Consider
In addition to the cost of tax preparation by a CPA, there may be additional fees to consider, such as:
- Filing Fees: Some CPAs may charge a separate fee for filing your tax return with the appropriate government agency.
- Consultation Fees: If you need additional advice or guidance beyond tax preparation, such as financial planning or investment management, you may be charged a separate consultation fee.
- Late Fees: If you miss the tax filing deadline, you may be subject to late fees and penalties, which can increase the overall cost of tax preparation.
Ways to Reduce the Cost of Tax Preparation by a CPA
There are several ways to reduce the cost of tax preparation by a CPA, including:
- Being Organized: If you have all of the necessary documents and information organized and ready to go, it can save time and reduce the cost of tax preparation.
- Using Tax Software: If your tax situation is relatively simple, you may be able to use tax software to prepare your own tax returns, which can be less expensive than hiring a CPA.
- Negotiating Fees: Some CPAs may be willing to negotiate their fees, especially if you are a repeat client or have referred other clients to them.
- Taking Advantage of Tax Deductions and Credits: By maximizing your tax deductions and credits, you can reduce your tax liability and ultimately reduce the cost of tax preparation.
- Asking for a Quote: Before hiring a CPA, ask for a quote for their services. This can help you compare prices and find a CPA who fits your budget.
When Is It Worth Hiring a CPA for Tax Preparation?
While the cost of tax preparation by a CPA may be higher than doing it yourself or using tax software, there are several situations where it may be worth the investment. These include:
- Having a Complex Tax Situation: If you have a complex tax situation, such as owning a business or having multiple sources of income, a CPA can provide valuable expertise and guidance to ensure your taxes are filed correctly.
- Needing Additional Services: If you need additional tax resolution/consultation services, such as financial planning or investment management, a CPA can provide a comprehensive solution to meet your needs.
- Wanting Peace of Mind: Hiring a CPA for tax preparation can provide peace of mind knowing that your taxes are being filed correctly and that you are maximizing your deductions and credits.
Other Considerations When Choosing a CPA for Tax Preparation
When choosing a CPA for tax preparation, there are several other considerations to keep in mind, including:
- Credentials: Make sure the CPA you choose is licensed in your state and has the appropriate credentials, such as a Certified Public Accountant (CPA) designation.
- Experience: Look for a CPA with experience in tax preparation and expertise in the specific areas that apply to your tax situation.
- Communication: Make sure the CPA you choose is responsive and communicates clearly and effectively.
- Reputation: Check reviews and references to ensure the CPA you choose has a good reputation and a track record of success.
The average cost of tax preparation by a CPA varies depending on several factors, including the complexity of your tax situation, your location, and the experience of the CPA. While the cost may be higher than doing it yourself or using tax software, there are several situations where it may be worth the investment. When choosing a CPA for tax preparation, make sure to consider their credentials, experience, communication, and reputation to ensure a successful outcome.