How Much Should Tax Preparation Cost?

It is not a secret that most people have to file taxes annually, and it can be disorienting to understand how much the tax preparation process might cost them. Depending on the complexity of your return, where you live, and which kind of professional or service you want, prices vary a lot. This guide will help you break down the common expenses, what influences the price, and how to select the most suitable option for your situation without paying too much.

Why Tax Preparation Costs Vary

The cost of tax preparation isn’t one-size-fits-all. What you pay depends mostly on:

The Complexity of Your Tax Return

Simple tax returns, including filing a Form 1040 with no itemized deductions, are much less expensive than those that involve rental property, investment, business, or other sources of income.

The Type of Service You Choose

You can file using:

• Tax software
• A retail tax service (e.g., H&R block, Jackson Hewitt)
• CPAs or enrolled agents
• Tax attorneys

All of them have differing prices.

Your State and Local Market

The cost of tax preparation is generally more expensive in big urban centers particularly on the east and west coasts.

Additional Services

Audit protection, bookkeeping support, or tax planning consultations increase the total cost.

Average Tax Preparation Costs

These numbers are general national averages. Precise prices might vary but these ranges give a good estimate.

DIY Tax Software ($0-$200)

The least expensive and easiest to use is tax software which is effective in simple returns.

Typical prices:

Free: When you are subject to the IRS Free File program and have only W-2 income

$20-$60: Basic federal returns with popular software

$60-$200: Premium packages containing itemization, investments, or small business earnings

This is the best option that can be adopted by individuals who are not afraid of technology and who have few tax-related issues.

National Preparation Chains (Tax) ($150-$600+)

H&R Block, Jackson Hewitt, and Liberty Tax are some of the companies that provide tax preparation services both online and offline.

Average costs:

$150-$250: Simple return (Form 1040, no itemizing)

$250–$400: For itemized returns

$400-$600+: A more complicated filing, such as rental income, freelance income, or investments

These chains are easy to use, and they provide good support, which is usually expensive compared to software online.

Enrolled Agents/Independent CPAs ($200 -$1,000+)

The choice of a Certified Public Accountant (CPA) or an Enrolled Agent (EA) is the most suitable choice when people have complex financial scenarios.

Typical CPA pricing:

$200-$450: Basic individual tax returns

$400-$1,000+: Itemized returns with extra schedules

$800-$2,500+: Small business returns, S-corporation, or partnership, or several rental property returns

CPAs may be quite expensive as compared to other alternatives, though experience and customized recommendations will save you in the long run.

Tax Attorneys ($400-$5,000+)

The costliest options are typically tax attorneys who are usually employed to take care of:

• IRS disputes
• Tax audits
• Complicated business scenarios
• Estate or trust matters

In general, a tax attorney is not required to prepare taxes for most taxpayers.

What Determines Your Tax Prep Cost?

Knowing the price determinants will allow you to make good choices and save money.

Itemizing vs. Standard Deduction

When you use itemizing, your preparer will have to take more time in reviewing:

• Medical expenses
• State and local taxes
• Mortgage interest
• Charitable donations

This complicates and increases the price.

Multiple Income Sources

It would cost more to come back with:

• Self-employment income
• Investment income
• Rental income
• Foreign income
• Multiple W-2s

Every source of income can demand additional forms (Schedules C, E, D, Foreign Tax Credit, etc.).

Small Business/Freelance Income

In the event you own a business or work as a freelancer, you will have to pay extra fees:

• Expenses of the business deductions
• Depreciation
• Mileage tracking
• Home office deductions

Small business tax preparations are more time consuming and require expertise and are thus, very costly.

Tax Credits and Deductions

The filing of tax returns that entail specific credits, like the Earned Income Tax Credit (EITC) or the Child Tax Credit, demand supplementary documentation and additional fees in some cases because of the IRS due-diligence mandates.

Audit Support or Protection

Other preparers are providing optional audit protection packages which may be added on top of your bill at $40-$150.

How to Choose the Right Tax Preparation Option

The most appropriate option depends on your financial status and comfort.

Choose DIY Software If:

• Your tax situation is a simple one
• You earn W-2 income only
• You don’t itemize deductions
• You want the least expensive option

This would suit students, single workers, and tenants.

Select a Tax Preparation Chain Whenever:

• You want in-person help
• Your tax is somewhat complicated
• You are seeking a compromise between being economical and convenient

The store is open during evenings and weekends which is convenient to most.

Select a CPA or Enrolled Agent If:

• You own a business
• You have rental properties
• You invest heavily
• You sold assets, stocks, or property
• You desire tax guidance all year round

This is the most customized tax plan and the greatest probability of maximizing your refund or minimizing your tax liability.

Choose a Tax Attorney If:

• It is an IRS audit or tax litigation
• You have massive arrears on taxes
• You are under possible fines or legal problems

This is not required in routine filing of tax.

Tips to Avoid Overpaying for Tax Preparation

The following are clever methods to control costs:

Get Several Quotes

Fees of tax preparers are not often fixed. A majority of professionals will provide you with an initial estimate on request.

Stay Organized

Preparation saves your tax preparer time and this saves you money. 

Bring:

• W-2s and 1099s
• Receipts
• Mortgage statements
• Last year’s tax return

Ask for a Detailed Fee Breakdown

Legitimate preparers will give out what they will charge per form or schedule.

Avoid Preparers Who Take a Percentage of Your Refund

The IRS warns against this. Always make sure that you get someone who is charging a flat or hourly rate.

Use IRS Free File If You Qualify

The IRS collaborates with well-known tax software vendors to provide free filing to qualified taxpayers.

So… How Much Should You Pay?

Here’s a quick summary:

A reasonable expectation among most people with a standard return is a range of $150 to $400.