We did an analysis of our services at the end of this tax season and I realized that we may not be able to do our most basic tax returns for the price we have been charging for years.
We have not changed the cost of our basic return in years, but an analysis of our costs indicated that the basic fee was not keeping up with the cost to prepare a return and the constant additional regulations that are being forced upon us by the Internal Revenue Service. Tax software is expensive. The cost of it increases every year. We are not an H&R Block. Our costs exceed theirs in every possible way. Given the millions of returns they prepare, their software cost is almost inconsequential. The cost of their staffing is also more than likely less than small to medium sized independent CPA firms. We do not hire seasonal employees to prepare tax returns. So our cost is higher there as well. Plus, we just endeavor to prepare a higher quality product. We are trying to build relationships so we can get to know our clients well enough to offer more than just some pieces of paper that are your annual tax return. We are held to a high level of professional standards. Between our industry and the Internal Revenue Service, there is a lot going on in the background of your return that most clients are unaware of, but that take time. For all of these reasons, we are re-evaluating the fee we charge for basic tax returns. There is little to no profit margin in the most basic returns and we may have to leave those returns to the chain tax preparation firms in the future.
I hate that option. I think having a relationship with a CPA offers so much more than just the preparation of a tax return. If you use your CPA appropriately, we can do so much more for you than just prepare a Form 1040. When we are familiar with you and your goals, we can assist you in ways that do more than just save tax dollars. We are an industry that bills for the time we spend working for you. If we cannot bill an appropriate amount for our services then we will have to start declining to prepare basic returns.
Keep these things in mind when you shop for tax return preparation. There is a lot that goes into the preparation of a return, no matter how simple it might be. Answering your email questions, spending time speaking to you on the phone all take time away from time we could be billing for our services, yet most clients do not expect that we will bill for email conversations or phone calls that last a few minutes to a half an hour. We had several clients come in to pick up their returns this year and wanted to sit down and discuss their return after it had been prepared and the invoice for the services had already been provided.
We did not have any additional time for these unexpected meetings built into the fee we charged. I am pretty sure that my clients would have been surprised to receive an additional invoice for time spent talking to them when they came in without an appointment and wanted to talk about their particular situation. Yet that time was spent with a client and was not available to spend on another client for which we could have billed that time. There is a large portion of the population that is simply not familiar with what it takes to prepare a return and do not realize that we need to bill for the time we spend with you whether it was scheduled or not, whether is was spent answering your email questions or answering your “quick” question over the phone. To avoid billing clients for 15 minute conversations throughout the year and dealing with their disappointment that we did so, we would have to work some average amount of time into each return we prepared to cover that additional time. But then some clients pay for services that do not use and others pay less for the time that they require. Again, for the most basic of returns, there is just not enough profit margin to handle these situations.
I’m trying to find a way to offer the level of service we want to offer and have a decent profit margin once we have accomplished that. We may have to limit our services to business and individuals with more complex situations so that the fee charged has more room for not charging for time after the return in prepared. I would be interested in comments on this topic. Keep in mind that any average cost of tax preparation you may find is skewed as a result of millions of returns that are beyond simple and by the chain preparers that do not offer the same level of service or product that I am referring to here. Someone with a W2 and nothing else is a beyond basic return and there are millions of those in the averages.
My basic return is comprised on a couple, one or both of whom work, they own a home and itemize, they may have daycare, the have interest/dividends and such. These returns are basic to me, but not the most basic of returns that are included in the averages I see when I google the average cost of a return. Where we strive are individuals for whom we can have an impact. They make decent money, they need retirement planning encouragement, they need sound advice on how to make plans for a healthy financial future, getting kids through college, investing, owning rental properties and other similar investments. They are self-employed or own businesses of some sort. We can make a difference to these taxpayers. Thus the basic return may have to be left to firms who do not offer services these taxpayers want or need. still it is a shame because there is much to gain by spending your time and money with a CPA professional that can change the course of your financial life.