The Costs To Keep In Mind While Hiring An Accountant

As a taxpayer, you have one goal come April: pay the least amount of taxes you can.

One way to do that successfully is by hiring an accountant to do the filing for you. This accountant can be worth their weight in gold if they discover ways to earn you a refund that you wouldn’t have found yourself.

Depending on their cost, though, they can also eat away at any refund you receive.

As the Internal Revenue Service (IRS) prepares to accept 160 million individual tax returns leading up to the deadline on April 18, taxpayers turn to accountants to provide the know-how in the finer details of the tax code and increase their refund or decrease what they owe. With taxpayers earning, on average, more than $2,800 on each refund last year, for many it could provide a boost to the checking account. The amount you’re paying the accountant, however, can cut into your returns. That’s fine in cases where their expertise squeezes out better results. It, however, leaves little to be desired if your return wouldn’t change much, depending on who you go with.

That’s why it’s important to know what you should pay, when to go it alone and any extra expenses to prepare for if you’re selecting an accountant this year.

The costs to expect

What you will pay for help will vary depending on the complexity of your tax situation. For those who have one job that accounts for all their income and taxes are taken out of each paycheck, then the complexity of the situation will differ from someone else that works for themselves, earning income from various sources.

It will also vary, depending on where you live. If you reside in a city or large suburb, then expect to pay more than those that live in rural areas. According to the Association of Tax Professionals, someone living in an area with 10,000 to 50,000 residents, they paid an average of $189 per hour for tax help in 2021. Those that lived in areas with more than 50,000 people paid $209 per hour.

The complexity of the tax situation will impact what you pay as well, even if you go to a traditional service, like H&R Block

HRB
or Jackson Hewitt. While introductory offers may charge only a minimal amount (sometimes even free), the rates will only apply to those that have the most basic tax filing needs.

The moment that you increase the complexity, like if you have deductions you want to include, or you need more catered guidance, then it can result in more forms and higher prices.

Know what you will pay

Use the online offerings or software if you have income from your job and little else, as well as very few other assets on hand; in such cases, you’ll often find very little value by going through a more expensive CPA or service. If, however, you have a significant amount of investment, small business or other income sources, as well as more complex financial picture – like a house, income property, children and or other assets that can result in deductions – then it might be time to hire an expert.

Often, CPAs will price their service by the hour. But they can also determine how long it may take by the number of forms you’ll need to fill out to file the taxes. When they have more forms, it increases the amount they expect you to pay for their service.

Make sure to ask for an estimate of the service before accepting their help. Based on your needs, they can give you a rough estimate of what you can expect. It may rise to over $500 or beyond, depending on the experience and quality of the CPA you seek. For those with businesses, it can easily stretch to $900 and above. But if they can’t provide you an estimate, then be careful in opting in.

After all, you want to make sure that if they’re going to charge you higher rates, then they will find ways to return more of your money through what you don’t pay in taxes. If they can’t, then going with a lower cost accountant may make sense.

For those that have a financial planner, some organizations have tax experts on hand and will file your taxes for a very low fee or free. Remember, you’re likely paying for this service through the fee they charge to manage your retirement portfolio. But it’s a great way for quality tax help if you already committed to the financial planner’s fees.

And if you have adjusted gross income of less than $73,000, you can also access the IRS Free File system, which allows you to use free tax preparation software to file your taxes.  

Deduct, if you can

While you used to be able to deduct the cost of an accountant when filing individual taxes, that’s no longer the case. The Tax Cuts and Jobs Act, passed in 2017, did away with that ability. If, however, you own a small business or freelancing company, then it’s considered “ordinary and necessary” expense, allowing it to be included if you itemize business expenses on your return.

For those operating as a sole proprietor, or if you receive income from a rental property, farmers, as well as other businesses can qualify for this ability to deduct.

It’s a wrinkle of the tax law that may require a CPA’s help to ensure you’re taking advantage of it.