With the first round of tax filing deadlines around the corner, it helps to get a clear picture on tax preparation. But for those who don't want the burden of preparing their taxes themselves, how much should you plan to pay for income tax preparation fees?
According to a January 2017 report by the National Society of Accountants (NSA), the average income tax preparation fees range from $176 for those filing individual state and federal returns with no itemized deductions to $273 for those filing itemized returns. If you're also filing a Schedule C along with an itemized state and federal return, those fees go up to $457.
Of course, specific business return filings can increase these fees even more. Let's have a look at how income tax preparation fees are determined by tax professionals so you can ask the best possible questions when consulting a potential tax advisor.
Income Tax Preparation Fees: Why Hire a Pro?
Given that there's no shortage of tax preparation software available for both individuals and businesses, why should you consider hiring a pro to prepare your taxes? According to NSA Executive Vice President John Ams, time is the biggest determining factor, especially if you're filing an itemized return.
"It usually takes people more than five hours to prepare an itemized return—five hours that you won't get back," Ams says. There's also the benefit of an actual human being sitting in front of you. A tax professional can get a clear picture of your entire life and business profile and can help you uncover things like tax credits and deductions that even automated programs can miss from time to time.
As well, by working with a tax professional from year to year, you are building a relationship with someone who understands your tax history and can help you both proactively plan for years to come. This means the potential for fewer surprises where surprises are the least welcome—in your personal and business finances.
How Are Income Tax Preparation Fees Determined?
Tax professionals can charge in a variety of ways for preparing your returns.
Some will charge per hour, which means the more organized you are with your supporting data, the greater potential you have to keep costs down.
Some will charge per form filed, which means your fees will be commensurate with how complex your tax situation is and depend on your investments, business interests and overall deductions. For an average cost per form filed with your return, the NSA has a reference guide.
You may also find tax preparers who will offer a bundled rate for handling all of your personal and business returns, yet another potential benefit of building a relationship with a tax advisor.
How Can I Help Control Costs for Filing My Tax Returns?
You might not like the answer, but fortune favors the prepared. This means one of your best bets for controlling your income tax preparation fees is to be organized.
By offering your tax advisor your supporting documentation and financial records in the most organized way possible, you can help make their work swift. This means less time spent preparing your return and more time spent on reviewing your financial information and taking advantage of all available tax benefits for which you might qualify.
How can you be more prepared? For personal returns, make sure you have all of your W2s, 1099s and charitable donation receipts for the year handy. Documentation from your mortgage company (1098s) about mortgage interest paid are also necessary in addition to your form 1095-A (showing that your medical insurance premiums were paid).
For business returns, you'll need your books for the previous year closed out and your balance sheet plus profit and loss statement finalized.
Remember—your returns are only as strong as your supporting documentation. It's your tax advisor's job to make sure that for every deduction you claim, you have the appropriate documentation to back it up in the case of an audit.
Making sure you're gathering your tax information throughout the year can be a huge help. By organizing as you go, you can help save yourself time, headaches and potentially, money by offering your tax advisor the most organized picture of your finances possible.
Organization can be your ally, and whichever tax professional you entrust with your filings, they'll appreciate your attention to detail. With your help, they can help you not only get this year's filings taken care of, but plan for years to come so the filing process is as stress-free as possible.
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