How Much Does It Cost To File Taxes?

The average price to file taxes with a face-to-face preparer, including all bank fees, federal preparation, state preparation, Earned Income Credit preparation, audit assistance fees, and the rest of the miscellaneous fees were over $400 at a majority of the larger, national tax preparation chains in 2014.  With the new forms in 2015 for the Affordable Care Act – AKA “ObamaCare” – that average fee is expected to be closer to $500.

These dollar amounts come directly from the annual reports for H&R Block, Jackson Hewitt, and Liberty Tax Service, in addition to actual customer invoices.

Are these fees for rich people with itemized deductions, stock transactions, and corporations?  No.  These are for taxpayers with a couple of kids, a couple of W-2 forms, and the new health care forms.  Complicated returns will cost a lot more.

If you think that a tax company is going to accurately answer the question “how much do you charge” over the phone, good luck.  The fact is that the tax refund industry is laden with hidden fees, charges, questionable business tactics, and lawsuits.  Getting a straight answer over the phone can seem more difficult than getting accepted to Harvard Law School at times.  The best advice is to be careful.

Many tax companies bury their fees deep inside the package of documents.  Some do not provide access to the fees at all.  One common tactic is to only tell you the amount of the actual refund check, after all fees have been taken out.

Instead of saying “Your refund is $6,500 and your check is $6,000 after fees,” the conversation is normally “Your refund check is $6,000.”  Most preparers expect people to be happy with the check amount, and most tax clients will not ask about what the fees are.

tax guide-w2-1040

Want proof?  Ask around.  “How much did you pay to file your taxes?”  The answer is either “I don’t know” or an amount from a commercial that is way below the actual number.  $9.99 or $50 or $99 is what may have been advertised, but few people actually pay that amount.  It is usually more.

HELPFUL TIP:  Free or cheaper does not always mean better.  In a case where you are dealing with the IRS, red tape, multiple government agencies, and bureaucracies that routinely follow ‘policy’ before common sense, the cheapest option is not always the best.

How long has the preparer been around?  How long has the company been around?  How many times have they been fined by the IRS?  How many times have they been sued by customers?  These are all good questions to ask in addition to “How much does it cost?”

Is it better to file with a CPA?  No necessarily.  That could be like going to a heart surgeon to treat a broken toe.  CPAs are extremely qualified to handle the tax returns that they specialize in, but ill-equipped to handle other situations.  Many CPAs focus on businesses, corporations, and non-profits, so even easy personal returns can be outside their realm of expertise.

To get the best value for your dollar, the “Mom and Pop” or local tax company with a long track record in the community are your best bet.  No advertising budgets to pay for.  No executive salaries.  No royalties to parent companies.

Once again, do your homework.  Don’t jump around to the cheapest price on a TV commercial or the most interesting tax refund road sign that you see.  Find a reputable preparer and ask questions.

IRS EFILE irs-efile-taxes

HELPFUL TIP:  Always ask if IRS eFile is included in any price that you are quoted.  Many tax promotions lure you in with little or no tax preparation fees, but then hit you with $99 eFile fees.

As mentioned before, the tax refund business can be dirty and full of hidden fees.  This is just one of them.

Does your tax company spend millions of dollars on advertising?  That corporate cost is being passed along to you in tax preparation fees and other fees you do not often see, such as an IRS eFile fee.

Self Prepared Taxes

Should you file your own taxes online?  Should you use TurboTax?  Do so at your own risk.  The savings can be in the $100 to $200 range according to the price tag, but how do you know if you maximized your refund or accidentally cheated Uncle Sam?

Make sure you understand your rights under the audit process if you self-prepare your tax return online!

It is often worth paying a little extra to a face-to-face preparer to save THOUSANDS in lost refund dollars, IRS penalties, IRS interest, audit headache, as well as the stress of wondering “did I get all that I was entitled to?”  Plus, when you pay someone else to do the work, you have more time for the important things in life.

Once again, do you research to find smaller tax preparation companies to get the best value.  You may be able to find a price that is competitive with the online software packages.

One last note on self-prepared returns comes in the area of tax fraud.  If you are an identity thief, are you going to use a face-to-face preparer that checks for a photo ID, or are you going to self-prepare with an anonymous software online?

The IRS knows the answer to that question as well.  If you make a mistake on a self-prepared return, you are more likely to have your refund delayed.  The United States Treasury Department is being more careful about who they send tax refund dollars to.  Cutting corners to save a few bucks can cost you weeks or months of waiting for your tax refund.

If you are claiming children, filing for the Earned Income Tax Credit, claiming nieces/nephews/grandchildren, or self employed…a paid face-to-face preparer is HIGHLY advised.  These situations are being targeted by the IRS for fraud, so having a professional in your corner that you can sit with to help you can be a valuable asset.

1040 EZ Forms

If you are single, are only claiming W-2 employment, do not qualify for the Earned Income Tax Credit, and are not claiming children, you may qualify for free tax preparations.  Many promotions that you see on TV come with additional fees for electronic filing, audit assistance fees, and middle-man bank fees.

The best option for EZ filers is to head to www.IRS.GOV and click on the Free File link on the right side of the screen.  Here you will find links to a wide variety of free options, some of which are provided by H & R Block, Jackson Hewitt, TurboTax, TaxSlayer, Liberty Tax Service, FreeTaxUSA, and TaxACT.

Besides gaining access to free tax filing, you also get the opportunity to prepare your own EZ tax return.  Every American should have experience in filing and understanding their tax return and have a grasp of the tax filing process.  This can help prevent you from being taken advantage of in the future.

Educating yourself now can save you tons of money in the long run.