Occasionally, a new tax client will ask Why is my tax preparation fee higher than the minimum fee you quoted? This is one of my favorite questions because herein lies an opportunity to take the driver’s seat.  You want to pay less income taxes, right? Well, guess what – I want to charge you less tax preparation fees and you know why? Charging you less means I am working less during tax season (and it’s all about me, right? OK, not really…)

Fees – what really goes into how tax preparation fees are calculated? For the most part, fees are calculated based on the amount of professional time spent working on your engagement. For tax preparation, a hybrid system is used, since this process requires several short periods of work done at various intervals, it is not always practical to track the time.

The system consists of a minimum fee that covers the typical amount of time it takes to prepare a standard return, and then increasing them for various Other Factors.

Other Factors examples (most of these are billed according to time required):

  • Time consuming reviews of your tax return with you – I will review your return before it is finalized, and I would expect you to review your tax return prior to me filing it. In almost all cases, the tax return is correct based on the information you provided. But asking me to explain to you how specific line items are calculated, like depreciation or capital gains, is time consuming and won’t change the bottom line. If you want me to walk through your return with you, line by line, let’s meet up at my office after tax season. You can bring me coffee and pastries (provided I am not currently on sugar-lockdown) and we can have a lovely, informative appointment.
  • Not using SmartVault efficiently – be sure to only upload the specific information requested. Filling out and uploading your tax organizer will alleviate uploading unnecessary documents, such as all of your charitable contributions, instead of just listing the total on your tax organizer… avoid uploading blurry W-2s & 1099s, uploading 30-40 tax documents that aren’t actually tax documents, like your bank statements, or pictures taken with your iPhone of your checkbook registers (those beauties are usually JPEGs which don’t look too hot when they get printed). You can learn more about using the SmartVault here.
  • Complexity requiring research, additional communication, consulting, etc. More times than not, checking in with me throughout the year can alleviate this biggest time-sucker…how about that time I opened the client’s big envelope only to find out the rental property in San Jose was sold via a 1031 exchange, into three new out-of-state properties in three different states, and each property had to be set up as a new Schedule E’s on their tax return and oh yeah, each property had a series of capital repairs and fixed assets to accounted for on the tax return.

Did I mention this really happened 2 weeks before the final filing deadline? Hello, my old friends Ben & Jerry’s & cupcake-flavored Oreo cookies!

  • Long delays between information being requested and received AND/OR Multiple revisits to your tax return. The time to do this can really add up, since it requires reviewing and/or refamiliarizing myself with your situation again, each time I pick up your file, especially if there are long gaps of time in between visits. The #1 culprit in this situation is (you guessed it) – EMAIL!

More than a few (2-3) email exchanges to obtain information or clarification… I could write a book, (ok, maybe an article) about these types of exchanges. For example, I send you an email with three questions and receive a reply that only addresses one question OR I receive a vague one-word response (i.e. like maybe, or it depends) that makes me wish I had worn my secret decoder ring to the office that day.

Or you ghost me altogether, putting me in a position to have to send several follow-up emails. Some final thoughts to wrap this up:

What is included in your tax preparation fee:

  • Preparation of your tax return, including a few (2-3) emails to gather additional information.
  • Short review of the completed return (up to 15 minutes); additional time is billable.
  • Corrections of any errors by me (yes, is does happen. OK, rarely.)
  • Quick review & explanation of tax authority notices you receive.
  • Quick questions on tax topics by email year-round. Generally, “quick” means something I can answer in 5 minutes or less.

What is NOT included in your tax preparation fee:

  • Time-consuming corrections made after the tax return is completed, that are a result of inaccurate or incomplete information provided by the client.
  • That unexpectedly large tax balance due (proper tax planning might have avoided that) and you cannot afford to pay it. I can help you set up a payment plan. Or we can look at other payment options like a partial payment plan, an offer in compromise, or??? Point being, this falls outside the scope of an ordinary tax return.
  • Responding to IRS/FTB notices – these are billed at $350 per hour, including phone calls and writing letters to taxing authorities if you had previously opted out of our Audit Protection Plan.
  • Advanced mid/late in the year Tax Planning: While I will provide you with some basic tax savings tips for the following year, any specific tax planning, targeted at reducing next year’s potential tax liability is billed as a separate engagement at $300 per hour.