How Do I Price My Tax Services?

One of the most critical decisions you’ll make when starting your tax service business is how to price your services. Pricing can influence not only your profitability but also the type of clients you attract and the value perception of your business. While there’s no one-size-fits-all approach, there are several key factors to consider when setting your rates for tax preparation and other services.

Here’s a guide to help you price your tax services effectively.

1. Understand Your Costs

Before you set your prices, it’s essential to understand all the costs involved in running your tax business. These costs include:

• Software and tools: The price of tax preparation software and bookkeeping tools can add up, so you need to factor this into your pricing.
• Office expenses: Whether you work from home or rent an office, consider utilities, office supplies, and rent if applicable.
• Professional liability insurance: Errors and omissions (E&O) insurance is necessary to protect yourself from liability.
• Marketing costs: Your marketing efforts to attract clients—website, ads, business cards—should be covered by your fees.

Understanding your break-even point—the point where your revenue covers your costs—will give you a baseline for your prices. Anything above that amount will be your profit.

2. Research Industry Standards

Next, research what other tax professionals in your area charge. Pricing varies based on location, the complexity of tax returns, and the experience of the tax preparer. A good place to start is the National Society of Accountants (NSA), which releases annual surveys on the average fees for tax preparation.

As a general guideline, here are some average prices for tax preparation services in the U.S.:

• Simple individual tax return (Form 1040, with no itemized deductions): $220–$300
• Individual return with itemized deductions: $300–$500
• Small business or self-employed returns (Schedule C): $450–$600+
• Corporate tax returns: $800–$1,200+

These numbers will vary by region and the complexity of the return, so it’s important to compare what’s typical in your local market.

3. Consider Different Pricing Models

There are several ways you can price your tax services. The model you choose can depend on your target market, the complexity of the services you offer, and your business goals.

Flat-Fee Pricing

This is one of the most straightforward pricing models. You charge a fixed rate based on the type of service or complexity of the return. For example, you might charge $250 for a simple 1040 tax return and $500 for more complex filings.

Pros: Easy to communicate and market, clients know exactly what to expect. Cons: If a return takes longer than expected, you may end up earning less per hour.

Hourly Rate

Charging an hourly rate is common for tax professionals, especially for more complex or ongoing tax services. Rates typically range from $100 to $300 per hour, depending on experience and location.

Pros: You’re compensated for every hour of work, even if a return is more complicated than anticipated. Cons: Some clients may hesitate to agree to an hourly rate, preferring a clear upfront cost.

Value-Based Pricing

This model involves setting prices based on the value you provide to your clients. For example, if you save a small business client thousands of dollars through strategic tax planning, the value of your service is higher than a simple tax filing. You can charge a premium for your expertise and the financial benefits your client receives.

Pros: Allows you to charge more for high-value clients, making your services more profitable. Cons: Harder to set a fixed rate upfront, which might lead to price resistance from clients.

Tiered Pricing

With tiered pricing, you offer different service packages at various price points. For example:

• Basic Package: $150 – Basic 1040 return with no itemized deductions
• Standard Package: $300 – 1040 return with itemized deductions
• Premium Package: $500+ – Small business tax returns, tax planning services

Pros: Gives clients options and helps capture a range of budgets. Cons: You need to clearly define what’s included in each package, which can become time-consuming.

4. Factor in Complexity and Time

Not all tax returns are created equal, and the time it takes to complete a return will vary based on the client’s financial situation. Here are some factors that can increase the complexity—and therefore the price—of a tax return:

• Multiple sources of income
• Itemized deductions
• Small business or self-employment income
• Rental properties
• Stock transactions or investments
• Tax credits like the Earned Income Tax Credit (EITC)

The more complex the tax return, the more time and expertise required. Ensure that your pricing reflects the complexity and time commitment, so you’re fairly compensated for your work.

5. Offer Add-On Services

Tax preparation doesn’t have to be the only service you offer. Consider offering additional services to increase the value of each client engagement, such as:

• Bookkeeping: Provide ongoing bookkeeping services to small business clients.
• Tax planning: Offer tax strategy sessions throughout the year to help clients reduce their tax liability.
• Audit support: Charge an additional fee for representing clients in case of an IRS audit.
• Amended returns: Offer amendments to previous tax filings for an additional fee.

These services can help boost your income beyond tax season and create long-term client relationships.

6. Review and Adjust Your Prices Annually

The tax preparation industry is dynamic, with tax laws and market conditions changing regularly. To keep your pricing competitive and profitable, review and adjust your prices on an annual basis. Consider:

• Rising costs: If your software subscription, office rent, or insurance costs increase, adjust your rates accordingly.
• Client feedback: Listen to client feedback. If many clients are praising your service but mentioning that your rates are high, it might indicate you’ve reached a price ceiling. If no one is pushing back on price, there may be room to raise rates.
• Competitor pricing: Stay informed about what other tax preparers in your area are charging to ensure your rates remain competitive.

Conclusion

Pricing your tax services effectively is crucial for running a profitable and sustainable business. By understanding your costs, researching local pricing trends, and considering different pricing models, you can set rates that attract clients while ensuring you’re compensated fairly for your work. Remember to factor in the complexity of each return, offer additional services to increase your revenue, and regularly review your prices to adapt to changing market conditions.