$980! Is my CPA ripping me off? What is a reasonable price for 2020 tax prep?

[YoungStache]

Hi guys, just want to get the opinions of knowledgeable people in this group. I'm in the SF Bay Area.

So my CPA quoted me $980 to do my 2020 tax prep after I sent in my tax documents. He had done my 2018 taxes for 200, then 2019 for 400 or 450, and the new quote now is $980.

He cited "increased scope of services, which includes 2020 audit protection and identity theft restoration services". He left it at that and didn't provide any details.

I had 2 employers, so 2 W2s in 2020. Sold an out of state rental property, purchased an out of state rental property. Also had an insurance payout on one of the properties that got damaged. Also have mortgage interest, brokerage capital gains/dividends, and capital losses to offset gains, all of which have tax statements.

Last year, I was charged 400 or 450, and already had 1 out of state rental property. I only had 1 employer though and didn't purchase or sell any homes. As for brokerages in 2019, it was just dividends.

Overall, it doesn't seem much more complicated than the 2018 or 2019. What do you guys think, and what are some questions I can ask to clarify? And what does 2020 audit protection and identity theft restoration entail? Seems like audit protection would be a given.

[secondcor521]

Sounds to me like your CPA doesn't want to do your taxes for whatever reason.  It's what they call "go away" pricing.  My best guess is that he doesn't know how to do something on your return, and he's charging you for the time to research the tax law in that area.

None of what you've described is hard except for the rental property transactions and the insurance payout.

I'd shop it around to other preparers, or DIY if you're feeling brave and competent to do so.

I agree audit representation would be expected typically with a professional tax preparer.  No idea on the identity theft stuff, which isn't really very connected with tax preparation as far as I understand things.

[YoungStache]

I emailed him back asking for a more detailed breakdown of the increased work and audit protection, and asked if he was willing to apply a discount for being a repeat customer and having referred him a client in the past. The price may be justified..

[reeshau]

Were your out of state properties in the same state, or different ones?  I can see why he would charge you for going to other states--he is probably farming out that work to someone who knows the state and has all the credentials to file in that state.  While some firms specialize in certain multi-state situations (i.e. snowbirds in Florida) if you are the only client dealing in these states, you may be causing your CPA to do a lot of homework before the filing really begins.

In that case, you might split up the work, too: have your CPA do Federal and your home state, and have your real estate connections recommend a local person just for that state's taxes.  That opens you up to coordinating the whole thing, but exploring that possibility may get you more comfortable about the effort and cost.

[Archipelago]

Paging @SeattleCPA

I contacted him directly and he gave me an honest answer on the cost and whether you fall into the DIY category. Although at this point, I don't know if it's too late for most tax professionals to be taking on new clients or anything.

If you do go the DIY route, I'd highly recommend FreeTaxUSA.

[DadJokes]

It's go away pricing. If that CPA is going to do those taxes, it might take away time from doing more profitable taxes, such as for businesses. So he is probably charging a similar amount to what he'd charge them.

I had a friend with a similar issue this year. His taxes were much simpler (W2s, dependent care, interest, student loans), and his CPA was going to charge $500. I ended up doing them for him this year and recommended that he use free tax software or H&R Block in the future.

[brellis1vt]

I'm in the same boat.  Two years ago it was $875 and last year was $1025.  My taxes are complicated (many investment accounts and my wife has a very simple small business) and he files the local, state, and federal taxes for us; however, I don't think they are that complicated.  My plan is to do them myself next year.  Do accountants make a big difference in an audit?  I was always taught that you pay for an accountant in case you are audited and to prevent user error.

[SeattleCPA]

Hi guys, just want to get the opinions of knowledgeable people in this group. I'm in the SF Bay Area.

So my CPA quoted me $980 to do my 2020 tax prep after I sent in my tax documents. He had done my 2018 taxes for 200, then 2019 for 400 or 450, and the new quote now is $980.

He cited "increased scope of services, which includes 2020 audit protection and identity theft restoration services". He left it at that and didn't provide any details.

I had 2 employers, so 2 W2s in 2020. Sold an out of state rental property, purchased an out of state rental property. Also had an insurance payout on one of the properties that got damaged. Also have mortgage interest, brokerage capital gains/dividends, and capital losses to offset gains, all of which have tax statements.

Last year, I was charged 400 or 450, and already had 1 out of state rental property. I only had 1 employer though and didn't purchase or sell any homes. As for brokerages in 2019, it was just dividends.

Overall, it doesn't seem much more complicated than the 2018 or 2019. What do you guys think, and what are some questions I can ask to clarify? And what does 2020 audit protection and identity theft restoration entail? Seems like audit protection would be a given.

@YoungStache ,  the price for this year seems fair, maybe even a little low. And those prices you paid for 2018 and 2019? Those aren't anywhere close to what a CPA needs to charge to make a living. Sounds like he or she didn't handle the repricing well... but I'd give the person credit for alerting you up front and after seeing your documents.

Some inside info... I believe H&R Block would probably charge you $600 to $700 for a return like you describe. Maybe even more. And that price reflects a labor cost that often runs maybe $13 an hour. So pretty modest skill. And you don't get any outside-of-tax-season customer service. The HRB office is probably literally locked up...

My costs to do a return like you describe? Gosh, I bet I'd have to pay someone for 5-6 hours of time. My "wholesale" cost runs $80 to $110 an hour, so I'll have paid one of the CPAs in my firm $400 to $600... the IT costs baked into the return probably run $100... rent in your area (as in mine) is astronomical (roughly 10% of the price we charge pays our rent)...

CPAs eventually learn you often can't make a good living preparing 1040 returns. Somewhat ironically given CPAs understand cost accounting, they often don't realize this until after they've created a sweatshop business they hate working in...

Here's my advice to individual taxpayers... keep your finances simple enough that you can do your return yourself using TurboTax.

If things do get complicated, however? Find a good firm or practitioner and pay them well.

P.S. I think we'd have charged around $1500 for the return. For what that's worth...

[Laserjet3051]

Wife and I have complicated returns, multiple Schedule C businesses, an S-corp, W2s, across multiple states, etc. Prior year was charged $600 for our 1040. This year living in a new state we shopped around after providing detailed information and got quotes of: $850, $500-$700, and $1000+. Before our taxes became so complicated I prepared the returns myself; now, however, the amount of my time it takes and given the complexity, we have been outsourcing it. Last year in TurboTax, I really struggled with getting the S-corp-specific health care deduction to integrate properly in the return despite hours and hours of attempts and calls. No thanks, we will pay the above quoted prices.

:)

[yachi]

When I stopped having my taxes done, I was being charged $350 to $400.  In the decade+ since then I've handled:
An in-state rental property purchase, rehab, refinance, and rental income, depreciation.
An insurance payout on a damaged rental property, with repair.
An in-state rental property sale with depreciation recapture.
Short term and long term capital gains taxes in taxable accounts, dividend interest
(this year) wash sale in taxable account
mortgage interest
W2 for multiple jobs (when switching employers)
HSA deductions, HSA overcontributions
401(k) deductions, rollovers to IRA

I started with Turbotax, then found CreditKarma's tax  software.  The first year CreditKarma didn't correctly account for the 401(K) contributions (I think on my state taxes), I caught it by doing my taxes in both CreditKarma and Turbotax that year.  Initially I was worried that I wouldn't do things correctly, and justified it by the savings on the preparation fees offsetting things I might have missed.  The reality is I was spending lots of time gathering my documents, traveling to the prepayer's office, and coming back once it was done.  Knowing what documents are required always took some knowledge of taxes anyway.

[startbyservingothers]

I agree that it is go away pricing.  Do you take up a lot of the CPA's time?  Otherwise, I'd say the CPA is just saying he doesn't want to do your specific return for some reason. 

I work for a small business in Lexington, KY and we would charge ~ $225 - $250 for that return.  We do remote returns across the country, by Mail, Secure Document uploads, Phone, Zoom, Etc.  If you like the idea of having your return prepared by someone that hates letting the IRS have any money they don't legally have to, feel free to reach out to me for more info. 

Note:  That price above is based on the rental property, stock trades, etc.  Most of our returns are MUCH cheaper.  Our prices go under $150 for some returns.

If you want someone local, ask around with persons in your network.  People often stick with the same tax person for years for a reason.

If you want to prepare your return yourself:
 1.  Be careful entering the property details.  The IRS is serious on depreciation.  You mess it up in either direction and you incur significant penalties at some point.
2.  Compare everything you do to last years taxes.  If your calculations are significantly different, try to figure out why.  That may mean you messed up, but don't assume that 100%.  I find mistakes from other preparers all the time, especially the ones that overcharge their clients......

[SeattleCPA]

I agree that it is go away pricing.  Do you take up a lot of the CPA's time?  Otherwise, I'd say the CPA is just saying he doesn't want to do your specific return for some reason.

I disagree. It's a multistate return with a disposition of a rental property and then an acquisition of another rental property.
 

... The IRS is serious on depreciation.  You mess it up in either direction and you incur significant penalties at some point.

The above seems overly pessimistic. You want to do the depreciation right. But you can fix past errors using a change in an accounting method form, the 3115.

I find mistakes from other preparers all the time, especially the ones that overcharge their clients......

That's interesting. Because in my experience, the exact opposite is true.

I think the IRS stats indicate that self-prepared returns show highest error rate. (Surely, most dangerous approach is to return by hand.)

Unenrolled preparers have next highest error rate.

EAs and CPAs next.

[startbyservingothers]

I agree that more persons mess up their own returns.   Fortunately, I mainly see people attempting fairly basic on their own so that is somewhat limiting.  Mistakes from CPA's are much fewer and lower impact than we see H&R block type places likely due to the volume they work at.

I haven't had a situation where a 3115 was necessary, but even if you recover the lost depreciation the client is often would have been better off counting a small amount every year than a combined total applied to the current years return.  -Although I imagine clients are thrilled that they've (effectively) lent their money to the IRS and now get a large refund in the current year.   It's better and cheaper to not make the mistake to begin with.  - Why I would never recommend someone with rental properties prepare their own return.

[iris lily]

Our CPA firm, owned by a tax attorney, who we have been using for 30 years charges $550.

That is in flyover country.

He sends a worksheet each year for us to fill out to describe our financial year and identify highlights.

[CNM]

My spouse is a CPA and that *might* be on the high side for him, but not terribly so.  I live in a LCOL state.  However, he probably would not be able to take on any more clients at all at this late date and would need to charge a premium for "rush preparation."  Also, the tax laws have changed a lot recently with the stimulus packages so returns will take longer this year.

[tj]

Hi guys, just want to get the opinions of knowledgeable people in this group. I'm in the SF Bay Area.

So my CPA quoted me $980 to do my 2020 tax prep after I sent in my tax documents. He had done my 2018 taxes for 200, then 2019 for 400 or 450, and the new quote now is $980.

He cited "increased scope of services, which includes 2020 audit protection and identity theft restoration services". He left it at that and didn't provide any details.

I had 2 employers, so 2 W2s in 2020. Sold an out of state rental property, purchased an out of state rental property. Also had an insurance payout on one of the properties that got damaged. Also have mortgage interest, brokerage capital gains/dividends, and capital losses to offset gains, all of which have tax statements.

Last year, I was charged 400 or 450, and already had 1 out of state rental property. I only had 1 employer though and didn't purchase or sell any homes. As for brokerages in 2019, it was just dividends.

Overall, it doesn't seem much more complicated than the 2018 or 2019. What do you guys think, and what are some questions I can ask to clarify? And what does 2020 audit protection and identity theft restoration entail? Seems like audit protection would be a given.

Sound like a bargain. And "Audit protection" is included? That's nuts.  An audit could potentially take several extra hours. Usually I hear of audit protection as an add-on for using TurboTax, I didn't think professionals give their time away for free.