Multiple studies are done each year to provide reporting on average tax preparation fees across the country. This is also something practitioners frequently ask when seeking executive coaching for their practices.
Candidly, national averages according to the latest reports still seem to fall well below what I would consider to be a profitable range, but they are rising.
According to a recent study performed by the National Association of Tax Professionals, tax prep fees are expected to rise more than 20% this upcoming filing season. The study was completed in multiple geographical locations with the results noting that higher fees, as well as higher increases can be expected in locations with more dense populations.
Regardless of population or location, the study confirmed that fees were rising across the board. Other key points that practitioners should consider is the fact that we’re losing 6% of our revenue, according to the study, in unbilled tax strategy and IRS correspondence work.
If this is potentially you, go check out our post-“Scaling New Heights” article HERE. Sean Duncan, CPA, is the founder and owner of SMD Consulting and creator of The Chief Proactive Advisors offered a phenomenal session this year putting value pricing into perspective for strategy and correspondence work.
What’s worse than the above is that the study also found that 59% of practitioners are not billing until returns are completed with another 37% not billing until filing. Only 4% of firms are billing beforehand or asking for a retainer.
Our firm switched to the retainer model years ago. We used to require half up front and half up completion. When two thirds of your annual revenue is made up of tax prep fees and the client doesn’t have to pay until their extended return is filed in October, you’re setting yourself up for cash flow failure.
Requiring a deposit is the minimum that practitioners should be implementing for the sake of their practice being successful long term.
Switching to a prospective pay model or pay up front is even better. This type of billing helps to incentivize the client behavior we’re looking to see as well, which is getting us their information on time to get their returns done.
Ultimately, the lack of individuals coming into the profession is the most likely cause behind the fee hike. Many practitioners are citing their need to cut back on the number of returns they are preparing and/or that they are spending more time on more complex returns and therefore simply cannot take as many on.
On top of the industry squeeze from a declining preparer base, many practitioners noted that they did not increase fees during the pandemic and the big jumps are a result of those missed, inflationary changes over the last few years.
In any case, preparers should be looking at their fee structures and making sure that billing structures make sense for their business sustainability.
