How much does tax preparation cost? 2024 fees and charges explained

When the tax deadline looms, many individuals and businesses seek a tax professional to help them prepare and file their income tax returns. Deciding to engage a professional is usually an easy decision — tax is a complex matter, and mistakes or oversight can result in major issues down the line.

What isn’t always an easy decision to make, however, is which tax professional to work with — and cost is one of the most important factors to consider when choosing. 

In this article, we’ll explain everything you need to know about tax preparation fees. We’ll break down the factors that play into cost, different fee structures, and what you can expect to pay. So when the time comes to file your tax return, you’ll have the information you need to make the right choices.

Factors affecting tax preparation costs

No two tax returns are the same. Some are straightforward, others are highly complex. In this section, we’ll look at the key factors that dictate how much you’ll likely be charged for your tax return. 

Type of tax return: individual vs business

Individual tax returns tend to be much simpler — especially for those with relatively basic income sources. As a result, this service is almost always cheaper. Business tax returns are more complex and cost more as a result, particularly if the business is a corporation or partnership. 

Complexity of the tax return

The more complicated your finances are, the more you are likely to pay for tax preparation services. Several situations can combine to make the job more complex, including: 

• Switching between self-employment and employment during the tax year
• Having multiple income streams
• Income derived from capital gains, dividends, and other passive income
• Having multiple tax deductions or benefits

Geographic location

The cost of living varies greatly depending on where you are located — and the cost of tax services reflects these differences. If you live in an urban area with high living costs, you can expect to pay more than someone living in a rural location. Certain states may also have more complex tax regulations, which may lead to higher costs.

Expertise and experience

Tax preparation prices vary greatly depending on the specific tax professional or firm you choose. If you go for a solopreneur with basic qualifications, you’ll pay less. If you pick a large tax firm and work with a qualified Certified Public Accountant (CPA), you’ll pay considerably more. 

Average tax preparation costs

At this point, you might be thinking to yourself, how much can I expect to pay? While fees can vary greatly depending on the factors we’ve outlined above, here are some average tax preparation costs to give you an idea of what to expect. 

Individual tax returns

In the US, the average cost of a tax return depends on the specifics of the case. Individual taxpayers have to use Form 1040 to file federal income tax to the Internal Revenue Service (IRS). In addition, you may also be required to file state income tax. 

Here are some examples of average costs for different tax return scenarios: 

• Form 1040 with standard deductions plus a state income tax return — $220
• Form 1040 with itemized deductions (Schedule A) and a state income tax return — $323

On top of the above, there are additional charges for more complex returns that require more work, including the following average fees:

• For sole proprietors and independent contractors (Schedule C) — $192
• For reporting capital gains and losses (Schedule D) — $118
• For reporting annual rental income and losses (Schedule E) — $145

So, for example, if you’re a sole proprietor with itemized deductions, capital gains, and rental income to report, your tax return will cost just under $800 on average. 

Corporate tax returns

As we’ve already discussed, corporate tax returns are naturally more complex. As such, they command higher fees than individual tax returns. The costs involved depend on various factors, including the business structure and level of complexity. That said, the average nationwide cost of a corporate tax return is just under $,1000. 

Further reading: interested in finding out the average cost of other accounting services? Check out these articles: 

• The average cost of payroll services in 2024: a comprehensive guide
• How much does a bookkeeper cost in 2024: an ultimate guide

Tax preparation fee structures

Another factor to consider when choosing a tax professional is their fee structure. There are pros and cons to different approaches, and in some cases, the final price may vary significantly depending on the structure your accountant uses. 

There are two main pricing structures for tax filing: flat fees and hourly rates. Let’s take a look at each one in more detail.

Flat fees

With a flat fee, the clear advantage is that you know what you’ll pay upfront. Flat fees typically cover the entire tax-return process, including federal and state tax returns as well as initial consultations. Knowing exactly what you’ll pay has several benefits, including: 

• Simpler budgeting
• Greater transparency 
• No need to worry about creeping fees 
• Fewer issues around trust and efficiency

That said, in certain circumstances where tax returns require additional services to complete, such as amendments or more detailed consultations, you may end up paying more. It’s worth checking the tax professional’s terms and conditions before you commit to working with them. 

Hourly rates

Some tax professionals choose to charge by the hour. This is particularly popular in more complex tax cases, when it’s not clear how long it will take to complete. Tax professionals typically charge between $100 and $200 per hour, but experienced pros and CPAs may charge even more. 

The major disadvantage of hourly rates is that you don’t know what the final bill will be. If your accountant spots issues or irregularities that need resolving, the costs can creep up significantly. That said, for simple tax returns, you may end up paying less than with a flat-fee structure. 

The cost of DIY vs professional tax filing

These days, up to three-quarters of taxpayers choose to file their taxes themselves, either using tax software or manually. The reasoning behind this decision is usually to save on costs. But it’s not always that simple — DIY tax filing often comes with hidden costs and not-so-hidden risks. 

For example, many people use tax software as an alternative to a tax professional, and software isn’t always cheap. Then there are the risks that come with inaccurate or late filing, including fees or regulatory issues. Whether DIY tax filing is the best choice for you will depend on the specifics of your tax return and situation.

In the table below, we’ll compare the costs, benefits, and ideal scenarios for both DIY and professional tax filing for individuals. 

Hidden costs and additional charges

Professional tax preparers should provide transparent, upfront pricing whenever possible. In certain situations, however, you may be stung with additional or hidden costs. In this section, we’ll look at some examples of when your tax preparer may levy extra charges.

State tax filing fees

If you’re filing both federal and state tax returns, some tax professionals will charge extra for the state filing — often in the $50-150 range, depending on complexity levels — while others will combine both in one price. Be sure to double-check with your tax preparer if the state tax filing fee is included in the overall cost to avoid any surprises. 

If you’re taking the DIY route and using tax software, state tax filing will often be charged separately. Again, make sure you fully understand the pricing structure before you commit to using a particular software package. 

Amendments and revisions

Sometimes your tax professional will need to make amendments to your tax return post-filing. This could be to correct an error or include additional supporting information. In most cases, amendments aren’t included in the upfront cost of a tax return because the tax preparer won’t anticipate making any. 

Depending on the complexity of the amendment, you could pay anything from $50 to $300 on top of the original fee. Often, an accountant will charge less to amend a tax return that they filed but more if a different accountant or firm filed it.  

Most tax software enables you to make amendments as well, but this often comes with a small additional fee. Depending on the software you use, you could pay anywhere between $25 and $100 to amend a tax return.

Audit support

The IRS conducts regular audits of taxpayers’ books and records to check whether there are any incidences of unreported income. These audits can be of businesses as well as individuals. Sometimes they are strategic — in that the IRS suspects malpractice — but in other cases, audits can be completely random.

If you are selected for an IRS audit, having professional representation can make life significantly easier, but it comes at a hefty cost. Prices vary greatly depending on whether you are an individual or a business, as well as the complexity of the audit. That said, experienced CPAs and enrolled agents can charge hundreds of dollars per hour for representation in front of the IRS.   

Some tax software providers offer audit support services as well. Depending on the software provider you use, these services may be part of the standard pricing package or charged as an additional extra. Intuit Turbotax, for example, has an Audit Support Guarantee where you get one-on-one support from a tax professional. You can ask the tax pro any questions you have about the process, but they won’t represent you in front of the IRS. 

How to save on tax preparation costs

Tax preparation can get expensive, but there are ways to reduce the overall cost of filing a tax return without cutting corners. Here, we’ll look at some reliable strategies to help reduce the cost of your yearly tax return process.

Early filing discounts 

Some tax preparers offer discounted rates early in the tax season, typically before March. This is because they tend to be less busy at the start of tax season than at the end. If you shop around, you may find discounts in the 10-20% range, which can make a real difference to the overall cost of filing a tax return. 

Besides the possibility of discounts, filing early brings several advantages. First, you avoid the stress of a last-minute rush or late filing. It’s also easier to find a reliable tax professional earlier in the season compared to later on, when many are already at full capacity.

Bundled services

Some CPAs and tax professionals offer bundled services, including tax preparation alongside other relevant services. For example, a bundle might include tax preparation, audit protection, and tax planning services. 

The overall cost of bundled services is usually significantly lower than if you were to pay for all of the services individually. That said, bundles don’t suit everyone. For many people, simply paying for a tax return is sufficient. 

Using free filing options

With the IRS Free File program, some taxpayers can file their tax returns for free using tax software providers that are on the IRS list of trusted partners. These include FreeTaxUSA, TaxSlayer, and TaxAct. Each trusted partner has its own eligibility criteria based on income and sometimes even age. 

To file for free with TaxSlayer, for example, you must have an adjusted gross income (AGI) of $45k or less. With TaxAct, the AGI threshold is $79k or less, and taxpayers must be between the ages of 20 and 58 to qualify. 

In addition to the IRS Free File program, some software providers offer completely free versions for federal returns. These usually apply to very straightforward tax returns only, however, and state returns may cost extra.

How to choose the right tax preparer

There are several factors you need to consider when choosing the right tax preparer — and cost is just one of them. In this section, we’ll look at the credentials to look for, questions to ask, and red flags to avoid. 

Credentials to look for

“Tax preparer” and “tax professional” are fairly broad terms. For people with simple tax returns, a regular tax accountant will suffice. If your needs are more complex, however, there are more specialized tax professionals you can engage depending on your situation. Here are three key examples:

• Certified public accountants (CPA): CPAs are highly qualified accounting professionals who have met rigorous educational and experience requirements. They can help with complex tax situations, financial planning, and audits.
• Enrolled agents (EAs): EAs are tax professionals who have passed a comprehensive exam. They are authorized to represent taxpayers before the IRS in audits, collections, and appeals.
• Tax attorneys: tax attorneys are ideal for complex tax matters involving legal issues, such as tax disputes, fraud investigations, or estate planning. 

Naturally, you’ll pay significantly more to work with a CPA, EA, or tax attorney than you would with a regular tax accountant. In many situations, however, this level of expertise isn’t just a benefit but a legal requirement.

Questions to ask

When you’ve found a tax preparer with the right credentials for your specific return, it’s worth digging a bit deeper to understand their service offering. Here are some questions it’s worth finding answers to, whether via the accountant’s website or by reaching out directly:

• What is your fee structure? Understanding whether they charge flat fees or hourly rates helps you avoid unpleasant surprises.
• Do you have experience with tax situations like mine? Ensure the preparer is familiar with the specific complexities of your tax situation, whether it’s self-employment, investments, or multiple state filings.
• Will you be available year-round? Some preparers are only available during tax season, but you may need someone who can assist with audits, amendments, or tax planning year-round.
• How long will the process take? If you have time pressures, it helps to have a clear understanding of when you can expect your tax return to be filed. 

Ref flags to avoid

During your research, you should assess how transparent and professional the tax preparer is about factors such as their pricing, services, and experience. Here are some red flags to avoid when choosing a tax preparer:

• Guarantees of large refunds: beware of tax preparers who guarantee refunds before reviewing your tax documents. If anyone is promising unusually high refunds, this may indicate unethical practices.
• Lack of transparency in pricing: if a preparer is unwilling to discuss fees upfront, this could be a sign of hidden charges or unclear billing practices. 
• No credentials or inadequate experience: always ensure the preparer has the proper certifications and experience relevant to your tax needs. 
• Poor user reviews: one of the best ways to assess a service provider is by looking at their online reviews. If former clients are consistently unsatisfied, it’s a good idea to look elsewhere.
• Poor communication: if you reach out to a tax preparer and they reply 10 days later or don’t answer your questions, this indicates that they don’t prioritize clear and timely communication. 

FAQs

1. What’s the average cost of professional tax preparation in 2024?

The average cost for a professional tax preparer in 2024 depends on various factors, including the complexity of your tax return, your geographic location, and the expertise of the tax preparer. For a simple return, costs are typically in the range of $200-300. For more complex returns, such as those with itemized deductions, self-employment income, or capital gains, the cost can range from $300 to $800.

2. Is it cheaper to file taxes myself or hire a professional?

Filing taxes yourself is generally cheaper, with costs ranging from zero to more than $120, depending on the software you use and the complexity of your return. If your tax situation is complex, however, hiring a professional can be more cost-effective in the long run by ensuring accuracy and maximizing deductions.

3. What should I look for in a tax preparer?

It depends on your needs. If your return is relatively straightforward, we recommend looking for a regular tax accountant with excellent online reviews and transparent pricing. If you have more complex needs, look for credentials such as Certified Public Accountant (CPA), Enrolled Agent (EA), or a tax Attorney. 

4. Are there any hidden fees I should know about before getting my taxes prepared?

Yes, there are potential hidden fees such as:

• State tax filing fees — often an additional $50 to $150
• Charges for amendments or revisions — can range from $50 to $300
• Audit support fees — can cost anywhere from a few hundred to thousands of dollars if you need representation during an IRS audit

5. How can I reduce my tax preparation costs?

You can reduce costs by:

• Filing early to take advantage of early bird discounts (typically 10-20% off)
• Purchasing bundled services, such as tax prep and tax planning
• Using the IRS Free File program if your income qualifies

6. Can I negotiate tax preparation fees with my tax preparer?

In some cases, you may be able to negotiate fees. For example, if you have a longstanding relationship with the preparer, you may be able to get special rates or loyalty discounts. In most cases, however, tax preparers will want to stick to their pricing structure. Be sure to discuss the fee structure upfront to avoid any surprises.

To sum up

Understanding the costs associated with tax preparation is crucial. Whether you’re an individual or a business owner, you want to make sure you’re getting the best value for money when tax season comes around. 

In this guide, we’ve outlined the factors that affect tax filing costs, what you can expect to pay, and how to reduce your overall bill. While doing it yourself can save you money, sometimes it pays to work with a professional tax preparer. 

If you’ve decided to hand your tax return over to a pro, TaxDome Advisors is the perfect place to look. All of the experts we’ve listed have the experience, industry knowledge, and strong focus on client service you need for a smooth tax filing process.