TAX PREP FEE PHILOSOPHY. Copyright 2013 Drake Software

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1 TAX PREP FEE PHILOSOPHY Copyright 2013 Drake Software

2 Table of Contents Tax Prep Fee Survey Introduction... 2 Profile of Respondents... 3 Tax Prep Fee Averages - Federal Forms Prep Fee Averages by Region... 5 Federal 1040 e-file Fee and State Individual Return Prep Fee Averages... 6 Target Market & Factors in Setting Fees... 7 Prep Fee Adjustments Prep Fee Structure... 9 Timing of Payment...10 Payment Method Discounts Referral Incentives Tables

3 Tax Prep Fee Survey What is everyone else doing? As a business owner, it s a question you ask often. Whether it s pricing, products, services, hours of operation, or advertising, you want to know how you compare to your competition. You might be a risk-taker, looking for the big opportunity to differentiate your business and capitalize on a competitive edge. Or, you may be risk-averse and simply want peace-of-mind, knowing you are competitive in the marketplace. Either way, you want to be, and need to be, in the know about what everyone else is doing. We have conducted a nationwide survey of tax professionals to collect and compile important statistics about preparation fees, pricing models, and other data related to how preparers charge for their services. 2,600+ tax professionals participated in the survey. The survey produced some excellent data, and A LOT of it! We hope you find this informative and helpful as you head into the 2013 tax filing season. James Stork, Senior Vice President of Drake Software, shares the results of a recent survey conducted by Drake Software about tax preparation fees. If you have any questions about the results or would like to share feedback, please James.Stork@DrakeSoftware.com. 2

4 Profile of Respondents Local Market: Professional Designation: Suburban Rural Urban 21 % 18 % CPA - 31% EA - 25% Attorney - 1% 61 % RTRP - 36% None - 12% Return Volume: Type of Business: % 16 % Seasonal tax business, no off-season hours Mainly tax, reduced off-season hours Full service tax & accounting, year-round 47 % % 7 % 8 % 43 % 10 % 3

5 Tax Prep Fee Averages - Federal Forms Here are the average tax preparation fees charged for the federal tax forms we asked about in our survey: 1040 return (W-2/1099 income only, no itemized deductions, no state): $ return with Schedule A - Itemized Deductions (W-2/1099 income only, no state): $ return with Schedule C - Business Income (no state): $235 Federal Form 1041 (fiduciary return) $367 Federal Form 1065 (partnership return) $417 Federal Form 990 (tax-exempt return) $492 For federal return preparation fee averages broken down by various profile categories, click here. Federal Form 1120S (S corporation return) Federal Form 1120 (corporation return) $543 Federal Form 706 (estate return) $515 $1,145 4

6 Averages for 1040, Schedule A, and Schedule C by Region Federal return only / No state TOTAL AVERAGES $ Sch A... $ Sch C... $235 REGION 1 REGION 8 CO, MT, ND, SD, UT, WY $ Sch A...$ Sch C... $231 REGION 5 IL, IN, MI, MN, OH, WI $ Sch A... $ Sch C... $200 REGION 2 NJ, NY $ Sch A... $ Sch C... $244 CT, ME, MA, NH, RI, VT $ Sch A... $ Sch C... $261 REGION 10 AK, ID, OR, WA $ Sch A... $ Sch C... $283 REGION 3 DE, DC, MD, PA, VA, WV $ Sch A...$ Sch C... $239 REGION 9 AZ, CA, HI, NV $ Sch A... $ Sch C... $285 REGION 6 AR, LA, NM, OK, TX $ Sch A...$ Sch C... $256 REGION 7 IA, KS, MO, NE $ Sch A... $ Sch C... $197 REGION 4 AL, FL, GA, KY, MS, NC, SC, TN $ Sch A... $ Sch C... $213 5

7 Federal 1040 e-file Fee Do you charge for e-filing a federal individual tax return that is prepared in your office? Average 1040 e-file fee charged by preparers who answered Yes 13 % YES $27 For federal 1040 e-file fee averages broken down by various profile categories, click here. 87 % NO State Individual Return Prep Fee What is your average charge for preparing a state individual tax return? Overall average was $37 For state return preparation fee averages broken down by various profile categories, click here. For state return preparation fee averages broken down by state, click here. 6

8 Target Market What is your target market? High-end, primarily complex returns Mid-range, mix of easier and more difficult returns Great value, fast service, volume-focused Other For those who chose Other, some common approaches mentioned were: Low fee, low volume Somewhere in between value and mid-range, or mid-range and high-end Target specific clientele: clergy, retirees, ITIN holders, friends and family, etc. Just starting my business, unsure Moving towards retirement 80 % 11 % 6 % 3 % Factors in Setting Fees When setting your 2013 fee structure, what is your primary concern? Tax changes make job more complex / service more valuable Cover increasing operation costs Earn more per transaction / customer Cover new expenses related to RTRP certification Sustain and / or grow my customer base Other For those who chose Other, the most common perspective shared was that of concern for being fair and reasonable to the American taxpayer, citing current economic conditions as a major factor in trying to keep prices as low as possible. 16 % 8 % 37 % 13 % 22 % 4 % 7

9 Prep Fee Adjustments If you have more than one preparer in your office, do you adjust the fee based on the preparer s knowledge, experience, credentials or skill level? 62% of those who answered Yes are CPAs. Those who responded Yes were asked to explain. The most common explanation is that the office charges by the hour, and the hourly rate for each preparer is based on experience and skill level. Some commented that they make a fee adjustment when a more experienced preparer reviews a return prepared by a less-experienced preparer, while others pointed out that easier returns are typically routed to preparers who bill at a lower hourly rate. 85 % NO 15 % YES Do you typically charge more if the taxpayer is not well prepared (a.k.a. - shoe box fee) or otherwise difficult? 20 % NO 80 % YES 8

10 1040 Prep Fee Structure How do you typically charge for your 1040 tax preparation services? By form By form, with additional per item charge when relevant By hour By service tier / package 13 % 11 % 20 % A flat fee Other Charging methods differ based on the market being served: The highest percentage (30%) of high-end tax offices charge by the hour The highest percentage (39%) of mid-range tax offices charge by form, with additional per item charge when relevant The highest percentage (36%) of value+volume tax offices charge a flat fee 36 % 14 % 6 % For those who chose Other, the most common explanations were: I charge hourly with a base rate I use a hybrid of by form + by hour It varies based on the client Value billing; I take into consideration the client s ability to pay 9

11 Timing of Payment When do you require payment? 100% up front (before starting return) A percentage up front (before starting return) After return is completed, but before it s e-filed or given to client for mailing After return is completed and e-filed or given to client for mailing 34 % Other High-end tax offices preparing more complex returns are more likely to invoice or collect payment after the return is completed and filed. Mid-range and value+volume tax offices are more likely to require payment after the return is completed but prior to filing the return. Those who chose Other (4%) most commonly mentioned that it depends on the customer. For example, some said they allow more flexible payment options for returning clients and / or clients in good standing. 59 % 4 % 2 % 1 % 10

12 Payment Method Which payment methods do you accept? Cash Check Credit / Debit Refund Settlement Product Volume Drives Payment Methods Return Volume Credit/Debit Refund Settlement Product % 19% % 50% On average, tax offices preparing over 500 returns are more than twice as likely to accept credit cards and offer refund settlement products. Installments Livestock, Homemade Pies or Other Acceptable Bartered Goods 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of Respondents 11

13 Discounts Do you offer discounts? Discounts offered: 50 % of the respondents offer discounts Returning Customer Average % 15 % discount offered: Coupon from Advertising Referral The most common discount offered is for a referral. On average, the percentage of taxpayers that are likely to receive a discount, from offices offering discounts, is 23%. There is an unlimited number of reasons for offering discounts. Here are some common reasons that were mentioned by respondents in addition to the list we provided in the survey: - Seniors - Students - Hardship - Early Bird - Friends and Family - New Customer - Well Prepared Service Tier Chosen by Taxpayer Acknowledging a Service Blunder Returning a Favor Vocation or Affiliation (Veteran, Clergy, Police, etc.) Other Respondents 12

14 Referral Incentives Do you offer incentives for referring new customers? 45 % said Yes If so, what is the average dollar amount you will pay for a referral, whether it s cash or a discount? Overall average was $23 RTRPs (52%) and EAs (50%) are more likely to offer referral incentives to clients than CPAs (31%) and Attorneys (24%). 13

15 Federal 1040 e-file Fee Averages Broken Down by Various Profile Categories Average Federal 1040 e-file Fee Total Average: $27 By Region Region 1 (CT, ME, MA, NH, RI, VT) $18 Region 2 (NJ, NY) $26 Region 3 (DE, DC, MD, PA, VA, WV) $24 Region 4 (AL, FL, GA, KY, MS, NC, SC, TN) $29 Region 5 (IL, IN, MI, MN, OH, WI) $18 Region 6 (AR, LA, NM, OK, TX) $39 Region 7 (IA, KS, MO, NE) $15 Region 8 (CO, MT, ND, SD, UT, WY) $15 Region 9 (AZ, CA, HI, NV) $28 Region 10 (AK, ID, OR, WA) $21 By Local Market Urban $29 Suburban $27 Rural $23 By Professional Designation CPA $26 Attorney $16 EA $21 RTRP $31 By Business Type Seasonal tax business only $38 Mainly tax, reduced off-season hours $26 Full service tax & acct, year-round $24 By Volume 0-20 $ $ $ ,000 $25 1,001+ $59 By Target Market High-end, primarily complex returns $22 Mid-range, mix of returns $25 Great value, fast service, volume $38 14

16 State Return Preparation Fee Averages Broken Down by Various Profile Categories Average State Individual Return Prep Fee Total Average: $37 By Region Region 1 (CT, ME, MA, NH, RI, VT) $35 Region 2 (NJ, NY) $38 Region 3 (DE, DC, MD, PA, VA, WV) $35 Region 4 (AL, FL, GA, KY, MS, NC, SC, TN) $37 Region 5 (IL, IN, MI, MN, OH, WI) $27 Region 6 (AR, LA, NM, OK, TX) $42 Region 7 (IA, KS, MO, NE) $30 Region 8 (CO, MT, ND, SD, UT, WY) $34 Region 9 (AZ, CA, HI, NV) $42 Region 10 (AK, ID, OR, WA) $52 By Local Market Urban $37 Suburban $38 Rural $33 By Professional Designation CPA $47 Attorney $75 EA $37 RTRP $31 By Business Type Seasonal tax business only $38 Mainly tax, reduced off-season hours $34 Full service tax & acct, year-round $40 By Volume 0-20 $ $ $ ,000 $31 1,001+ $23 By Target Market High-end, primarily complex returns $68 Mid-range, mix of returns $37 Great value, fast service, volume $28 15

17 State Return Preparation Fee Averages Broken Down by State State Return Preparation Fee (Individual return) State Individual Return Total responses Average fee Alabama 42 $42 Arizona 65 $26 Arkansas 48 $34 California 279 $47 Colorado 52 $41 Connecticut 31 $29 Delaware 6 $18 Georgia 120 $37 Hawaii 11 $70 Idaho 13 $52 Illinois 61 $22 Indiana 67 $30 Iowa 20 $25 Kansas 34 $31 Kentucky 45 $22 Louisiana 62 $48 Maine 7 $ 4 Maryland 64 $50 Massachusetts 66 $39 Michigan 82 $38 Minnesota 56 $31 Mississippi 36 $45 State Return Preparation Fee (Individual return) State Individual Return Total responses Average fee Missouri 86 $28 Montana 5 $22 Nebraska 10 $52 New Hampshire (interest & dividends) 4 $48 New Jersey 54 $43 New Mexico 15 $41 New York 149 $44 North Carolina 114 $30 North Dakota 3 $57 Ohio 128 $24 Oklahoma 52 $42 Oregon 55 $49 Pennsylvania 85 $29 Rhode Island 6 $37 South Carolina 55 $28 Tennessee (interest & dividends) 26 $64 Utah 20 $28 Vermont 7 $54 Virginia 60 $32 West Virginia 7 $17 Wisconsin 63 $33 Total 2271 $37 Note: As with all surveys, the margin of error decreases as the number of respondents rises 16

18 Federal Return Preparation Fee Averages Broken Down by Various Profile Categories For federal 1040 e-file fee averages broken down by various profile categories, click here. For state return preparation fee averages broken down by state, click here. Federal Forms Schedule A Schedule C S Total Average $113 $160 $235 $417 $543 $515 $367 $492 $1,145 Region Schedule A Schedule C S Region 1 (CT, ME, MA, NH, RI, VT) $117 $173 $261 $536 $ 794 $736 $370 $473 $ 735 Region 2 (NJ, NY) $114 $165 $244 $422 $ 564 $579 $387 $612 $1,261 Region 3 (DE, DC, MD, PA, VA, WV) $111 $160 $239 $426 $ 605 $618 $388 $544 $1,940 Region 4 (AL, FL, GA, KY, MS, NC, SC, TN) $108 $145 $213 $361 $ 460 $443 $315 $432 $ 975 Region 5 (IL, IN, MI, MN, OH, WI) $102 $140 $200 $378 $ 497 $456 $320 $430 $ 741 Region 6 (AR, LA, NM, OK, TX) $131 $181 $256 $396 $ 476 $459 $351 $499 $1,014 Region 7 (IA, KS, MO, NE) $ 96 $136 $197 $324 $ 469 $445 $321 $400 $ 727 Region 8 (CO, MT, ND, SD, UT, WY) $101 $160 $231 $335 $ 453 $433 $345 $730 $ 858 Region 9 (AZ, CA, HI, NV) $126 $192 $285 $504 $ 674 $630 $467 $542 $1,712 Region 10 (AK, ID, OR, WA) $126 $177 $283 $653 $ 641 $549 $445 $591 $1,049 Local Market Schedule A Schedule C S Urban $121 $170 $250 $458 $ 552 $493 $396 $520 $1,307 Suburban $116 $165 $242 $425 $ 551 $537 $371 $507 $1,156 Rural $ 94 $131 $195 $342 $ 508 $461 $315 $410 $ 913 Pro-Designation Schedule A Schedule C S CPA $141 $202 $306 $551 $ 694 $660 $445 $676 $1,979 Attorney $143 $215 $319 $556 $ 786 $733 $517 $418 $2,191 EA $111 $161 $234 $389 $ 518 $495 $355 $440 $ 911 RTRP $ 95 $133 $191 $306 $ 406 $378 $277 $314 $ 350 Business Type Schedule A Schedule C S Seasonal tax business only $105 $139 $198 $340 $ 340 $336 $266 $249 $ 303 Mainly tax, reduced off-season hours $105 $149 $216 $363 $ 476 $460 $333 $386 $1,021 Full service tax & acct, year-round $121 $174 $260 $459 $ 597 $565 $397 $559 $1,292 Volume Schedule A Schedule C S $117 $169 $256 $760 $ 785 $502 $458 $540 $1, $124 $175 $268 $459 $ 625 $603 $420 $540 $1, $113 $161 $236 $419 $ 554 $531 $376 $522 $1, ,000 $104 $146 $208 $352 $ 459 $443 $326 $424 $ 938 1,001+ $ 95 $130 $173 $291 $ 383 $373 $274 $379 $ 568 Target Market Schedule A Schedule C S High-end, primarily complex returns $190 $271 $432 $874 $1,060 $943 $615 $960 $3,035 Mid-range, mix of returns $112 $160 $234 $401 $ 528 $507 $358 $482 $1,006 Great value, fast service, volume $ 90 $118 $164 $246 $ 301 $305 $260 $310 $