To price tax preparation services, first work out your cost per available hour: annual costs plus target profit, divided by realistic billable hours. Then estimate hours for each return type, multiply, and add fixed adders for complexity such as rental properties, K-1s or multi-state filing. Publish it as a fixed-fee price list with a minimum fee, and never base fees on a percentage of the refund.
Key takeaways
- Start from a cost-per-hour floor based on your own costs, target profit and realistic billable hours, not from what the firm down the street charges.
- Most firms overestimate billable hours; measure how much of each preparer’s paid time actually goes on client work before setting any fee.
- Price by complexity drivers (schedules, entities, states, prior-year problems) rather than by counting forms, and publish fixed fees clients can see in advance.
- Set a minimum fee, review prices every year before the season, and record time on a sample of returns to check your estimates.
- Circular 230 generally prohibits contingent fees, so never price ordinary return preparation as a percentage of the refund.
Why is competitor pricing a poor place to start?
The usual advice is to find out what other preparers nearby charge and land somewhere in the middle. The trouble is that you do not know their costs, their speed, their client mix or whether they are losing money. Copying a price copies all of that too.
A better order is: work out what an hour of your capacity costs, estimate how many hours each kind of return takes in your firm, then check the result against the market. If your number is far above what clients will pay, you have a productivity or cost problem to fix. If it is far below, you have been undercharging.
This guide uses illustrative figures throughout. Swap in your own; the method is what matters.
How do you work out your cost per hour?
Add up a year of costs: salaries and payroll taxes, the owner's target pay, software, insurance, rent, continuing education, marketing and admin. Add the profit you want the firm to earn. Divide by the number of billable hours the team can realistically deliver.
Billable hours are where most firms go wrong. A full-time preparer may be at work about 2,000 hours a year, but a large share goes on admin, training, chasing documents, client calls and slow months. The worked example below assumes 65% of paid time is billable, but that is an illustration, not a benchmark; your own share may be higher or lower, and it usually drops in the off-season.
Track it rather than guess. For two weeks, log time against client jobs and against everything else. That one exercise usually changes how a firm prices more than any benchmark survey.
A worked example: from costs to a price list
Take an illustrative firm with an owner and two staff preparers.
- Annual costs including salaries, owner pay, software, rent and insurance: $310,000
- Target profit: $50,000
- Revenue needed: $360,000
- Paid hours: 3 people × 2,000 = 6,000; realistic billable share 65% = 3,900 billable hours
Cost-per-hour floor: $360,000 ÷ 3,900 = about $92 an hour. Every price the firm sets should cover at least $92 for each hour the work really takes, including review.
Now apply it to return types, using hours the firm has measured on its own files:
| Return type | Measured hours incl. review | Floor at $92/hr | Published fee |
|---|---|---|---|
| Simple 1040, W-2 income, standard deduction | 1.5 | $138 | $175 (minimum fee) |
| 1040 with itemized deductions and investment income | 3.0 | $276 | $325 |
| 1040 with Schedule C sole proprietor business | 4.5 | $414 | $475 |
| 1040 with Schedule C and one rental property | 6.0 | $552 | $625 |
| S corporation return (Form 1120-S), clean books | 8.0 | $736 | $850 |
The published fee sits above the floor to leave room for returns that take longer than average. If a type regularly runs over its measured hours, raise the fee or change how the work is done.
Which complexity drivers should change the fee?
Counting forms rewards the wrong thing. A two-form return can take hours if the client's records are a mess, and a ten-form return can be quick if every number comes from clean statements. Price the things that actually create work. A simple set of adders on top of the base fee is easy to explain:
- Each additional state return, especially part-year or nonresident returns.
- Each rental property, more if it is the first year and depreciation must be set up.
- Each K-1 from a partnership, S corporation or trust.
- Brokerage accounts with many transactions, or cost basis that must be rebuilt.
- Crypto or digital asset activity that needs reconciling.
- Late or incomplete documents, charged as a rush or reorganization fee set out in the engagement letter.
- Prior-year issues: amended returns, IRS notices, missing years.
Write the adders down and use them every time. Consistency is what lets clients trust a fixed fee.
Should you charge fixed fees, hourly or packages?
Each model has a place. The comparison below is a starting point for deciding which to use for which work.
| Model | Works best for | Risk to the firm | Client experience |
|---|---|---|---|
| Fixed fee per return type plus adders | Individual and small business returns | Underpricing if hours are not measured | Clear, known in advance |
| Hourly | Clean-up, notices, unusual projects | Low, but penalizes speed | Uncertain final bill |
| Annual package (return plus planning, estimates, notices) | Business owners and higher-income clients | Scope creep without clear limits | Predictable, often paid monthly |
| Tiered packages (basic, standard, premium) | Firms with many similar clients | Clients choosing the wrong tier | Simple choice |
Many firms combine them: fixed fees for returns, hourly for notices and clean-up, and an annual package for business clients who want year-round help. Annual packages pair naturally with recurring monthly invoices, which smooth cash flow outside the season.
How do you measure how long each return type takes?
The price list is only as good as the hours behind it. Most firms have a feel for how long returns take, and most underestimate, because the hours they remember are preparation hours. Review, client questions, missing-document follow-up and e-file rejections are spread across weeks and get forgotten.
A light-touch way to measure:
- Pick a sample. Choose ten to fifteen returns of each main type from the coming season, a mix of easy and awkward clients.
- Log every touch. Record time against the job for intake, preparation, review, client queries and filing, not just the preparation session.
- Separate the outliers. Note why any return ran far over: poor records, late documents, a new rental. Those reasons become your adders.
- Use the median, not the best case. Price from the typical return in each group, and let the adders handle the hard ones.
- Repeat each season. Hours shift as software, staff and client mix change.
Even a rough sample changes decisions. Firms often find one return type quietly losing money while another subsidizes it, and that is invisible until time is logged against jobs.
Measured hours also help in conversations with clients. When a client asks why a rental property adds to the fee, being able to say that each rental adds about an hour and a half of work in your firm is more persuasive than pointing to a list.
What pricing rules does Circular 230 impose?
Pricing is mostly a business decision, but there are rules. Under Treasury Department Circular No. 230, which covers attorneys, CPAs, enrolled agents and others practicing before the IRS:
- Section 10.27(a) says a practitioner may not charge an unconscionable fee in connection with any matter before the IRS.
- Section 10.27(b) generally prohibits contingent fees, which include fees based on a percentage of the refund or of the tax saved. There are narrow exceptions, such as certain work in connection with an IRS examination of an original return, claims filed solely for statutory interest or penalties, and judicial proceedings.
So "we take 15% of your refund" is not a lawful way to price ordinary return preparation. Fixed fees, hourly rates and packages are fine. State law and state boards of accountancy can add their own rules, so check them too.
Pricing also has a compliance cost floor. Every paid preparer needs a current PTIN, and the IRS is reminding preparers to renew for 2027 now. Include costs like these in the annual budget behind your hourly floor.
How should you present and raise prices?
A price list that clients can see before they commit removes most fee arguments. Put the base fees and adders in the engagement letter, and send the letter before the client uploads anything. A client who knows the fee in January does not dispute it in April.
A few habits help:
- Set a minimum fee. Very simple returns still carry fixed costs: onboarding, security, review and e-file.
- Review prices every autumn. Use last season's measured hours and this year's costs, then update the engagement letter before the season.
- Raise prices with notice. Tell returning clients in the engagement letter, with one sentence of reason. Most clients accept a moderate, explained rise.
- Price new clients higher. First-year returns take longer: prior-year review, carryovers and setup.
- Use software that records the data. Our guide on choosing practice management software for a tax firm covers what to test, including time tracking by job.
How Zaquil handles tax preparation pricing and billing
A fee model only works if the firm can measure time, apply its price list consistently and get paid without chasing. Zaquil covers those three steps.
Jobs from templates. Each return type, from a simple 1040 to an 1120-S, is a job template with its own checklist. Staff log time against the job, so at the end of the season the firm can see real hours by return type and check them against the price list.
Engagement letters with the fee, e-signed. The client receives the engagement letter with base fee and adders in a branded secure client portal and e-signs it. The firm keeps the signed PDF certificate on the client record.
Invoices, recurring invoices and unbilled time. The firm raises a fixed-fee invoice when the return reaches review, bills any unbilled time for notices or clean-up, and sets up recurring invoices for annual packages. The client sees each invoice in the portal and pays online.
Documents locked until paid. The finished return can be locked to its invoice, so the client sees that it is ready and opens it once paid.
Reports. Reports show revenue and time by job type, which is the data you need to revise prices each autumn.
See how it fits a practice on the accounting and tax solution page, or compare Zaquil plans: from $19 a month with a 14-day free trial and no credit card to start.
Frequently asked questions
How much should I charge for a simple tax return?
Work it out from your own numbers rather than a national average. Measure how long a simple return takes your firm, including review and e-file, then multiply by your cost-per-hour floor. Most firms then set a minimum fee above that, because even a simple return carries onboarding, security and review costs. Check the result against local prices to make sure it is realistic.
What is a cost-per-hour floor?
It is the least each billable hour must earn for the firm to cover its costs and target profit. Add annual costs, including salaries, owner pay, software, rent and insurance, plus the profit you want, then divide by realistic billable hours. Any fee that pays less than this floor for the hours a return really takes loses money, even if it looks competitive.
How many billable hours does a tax preparer have in a year?
Far fewer than paid hours. A full-time preparer may work around 2,000 hours, but admin, training, client calls, document chasing and quiet months reduce chargeable time. There is no reliable universal figure, so do not borrow one. Track time against client jobs and everything else for a couple of weeks, and use the share you actually measure.
Should I price tax returns per form?
Per-form pricing is simple but often inaccurate, because the number of forms does not track the work involved. A messy two-form return can take longer than a clean ten-form one. Pricing by complexity drivers, such as rental properties, K-1s, extra states and poor records, usually reflects effort better. Many firms combine a base fee by return type with fixed adders.
Is hourly billing a bad idea for tax preparation?
Not always, but it suits some work better than others. Hourly billing makes sense for clean-up, IRS notices and unusual projects where scope is hard to predict. For routine returns it penalizes efficiency and gives clients an uncertain bill, so fixed fees are usually easier to sell and to collect. Many firms use both, depending on the type of work.
Can I charge a percentage of the client's refund?
Generally no. Circular 230 section 10.27 prohibits contingent fees for services connected with matters before the IRS, and a fee based on a percentage of the refund is contingent. Narrow exceptions exist, for example certain work connected with an IRS examination of an original return. Ordinary return preparation should use fixed fees, hourly rates or packages.
What is an unconscionable fee?
Circular 230 section 10.27 says a practitioner may not charge an unconscionable fee in connection with any matter before the IRS, but it does not set a dollar test. In practice it means a fee grossly out of proportion to the work and its value. A transparent price list, agreed in a signed engagement letter before work starts, is the best protection against disputes.
How often should a tax firm raise prices?
Review prices every year before the season, using last season's measured hours and this year's costs. Many firms make moderate annual increases rather than rare large ones, which clients find easier to accept. Put the new fees in the engagement letter with a short reason. If a return type keeps running over its estimated hours, adjust that fee specifically.
Should new clients pay more than returning clients?
Often, yes. A first-year client usually takes longer: the firm reviews prior-year returns, sets up carryovers and depreciation schedules, and learns how the client keeps records. Some firms charge a one-time onboarding fee instead of raising the return fee. Either way, explain it in the engagement letter so the client knows why the first year costs more.
What should a tax preparation price list include?
List base fees for each return type, fixed adders for complexity drivers such as extra states, rental properties, K-1s and heavy brokerage activity, a minimum fee, and any rush or reorganization fees for late or incomplete documents. State that fees are not contingent on the refund and when the invoice will be issued. Keep the list short enough that clients can find their own situation.
How do annual packages work for tax clients?
An annual package bundles the return with services such as tax planning, estimated tax calculations and handling IRS notices, usually for a fixed yearly fee. Many firms bill it as a monthly recurring invoice, which smooths cash flow outside the season. Define what is included and what is extra, or scope creep will erode the margin.
How can I check whether my prices are working?
Record time against each return during the season and compare actual hours with the hours your price assumed. Look at realization, meaning what you collected against what the time was worth at your floor rate, by return type. If a type consistently earns below the floor, raise its fee, change how the work is done, or stop offering it.
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