Tax News By Christopher: How to Price Your Tax Preparation Services

“The buyer is entitled to a bargain. The seller is entitled to a profit. So, there is a fine margin in between where the price is right.” – Conrad Hilton

Ready to start your tax business for the 2018 season but wondering how much to charge? It can be difficult to price your own services. If you’ve done any market research you’ve likely discovered that the cost of preparing any tax return can vary dramatically among different tax practitioners.

Many tax preparers charge by the hour, others operate from a standard schedule of charges, and some simply charge “what the traffic will bear.”

IRS Laws

One thing you cannot do is base the price of your services on the amount of tax refund realized by the client. Not only is it illegal, it’s a poor way to do business.

Determining Your Fees

Deciding how much to charge should be based on a number of factors:

Your level of knowledge and experience
Your overhead
Price elasticity
How much your competition charges
The national average pricing

Knowledge and Expertise

If you are just starting out and looking to gain market share, it’s a good idea to charge a bit lower to attract clients. Be careful not to undercut yourself too much. Significantly lower fees are a red flag to potential clients.

If you have been doing taxes for a number of years, have built up your tax knowledge and/or have credentials, you can charge a lot more for your services. It’s one of the great benefits to getting an advanced tax education.

Your Overhead

It’s important to charge enough to cover the costs of doing business while still making a profit. Are you paying for office space? Do you have employees? How much are you paying for your tax software? Make sure you consider all of your expenses before determining your fees. Tax preparers who work from a home office have significantly lower overhead than those who have a storefront and thus can afford to charge lower fees.

Price Elasticity

Consider what your overhead may be a year or two from now before you charge lower fees. If you work out of your home but plan to move into a storefront or professional office in the future, your fees need to be adequate to cover your new expenses. It’s easier to lower fees than it is to raise them. However, you don’t want to charge too much. It’s a very delicate balance.

Your Competition

Shop around your competition to make sure you understand your local market and are competitive in your pricing. You can do this by calling around and asking for quotes or by having family and friends do so.

The National Average

It’s important to also know what the national average pricing is so you have a baseline for where your pricing should be. National tax preparer price surveys are conducted annually by some of the tax professional associations such as the National Association of Tax Professionals.

How to Charge

There are two main ways to charge as a tax preparer: by the form or by the hour. The national tax firms charge based on the tax schedules and statements required to prepare the client’s returns. The way in which you determine your fees will depend on your business.

Charging by the form is the fairest way if you employ tax preparers. It’s equitable to them because some tax preparers are slower than others. It’s also fair to the client, who would not appreciate being charged more simply because their preparer is slow.

Charging by the hour is more appropriate for a sole proprietor but could actually undercut your services if many of your clients need only basic tax preparation.

For more on the pros and cons of charging by the form or the hour, check our blog post: Charging by the Form vs. by the Hour.

For an in-depth look at getting started as a tax preparer, starting a tax business, and pricing your services, check out my new book, Guide to Start and Grow Your Successful Tax Business. In it you’ll find sample pricing, tax office operating systems, strategies and best practices that I used when I build my own tax business.