How much should you pay for tax prep?

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As I recently wrote, some people can benefit from hiring a professional to prepare their tax returns. But how much should it cost?

That will vary according to the complexity and completeness of your tax information, although being well organized and having excellent records often can save you money. 

Tax return pros typcally charge in one of the following ways:

  • Set-fee rate for each form and schedule required for your tax return
  • Fee based on the prior year's tax-prep costs, adjusted for changes in the client's situation
  • Hourly rate based on the time required to prepare a return or on IRS guidelines regarding how long it should take to complete certain forms
  • Flat fee per return

Avoid a payment arrangement where the tax preparer bases his or her fee on a percentage of your refund. Also be wary when the preparer is employed by a tax-prep chain that is paid according to the number of returns they process. That gives these firms an incentive to churn out a high volume of returns, which can compromise the thoroughness and quality of their work.

Regardless of how you are charged, it's always advisable to present all of your tax information and get a firm estimate before you agree to go forward, especially if it's the first time you are working with a tax preparer.

According to a 2010 fee study by the National Society of Accountants, people paid an average of $229 for a pro to prepare their 1040 with Schedule A and a state return. A 1040 and state return with no itemized deductions cost an average of $129. Among national tax service firms, the average cost of preparing returns was $189 per return at H&R Block and $208 at Jackson Hewitt, according to 2010 data.

Finding a tax preparer

It's not all about the fee, of course. A good tax-prep pro can offer a variety of services beyond completing your return, such as advising on tax saving strategies unique to your employment situation or profession. They also can help you organize and plan for next year's taxes by suggesting what records to keep and what financial moves to make to lower your tax liability. Another helpful service -- determining if you have to pay estimated taxes each quarter and calculating payments. The bottom line is to make sure your preparer is qualified to offer the services you need.

Perhaps the best way to find a good tax preparer is to ask for a recommendation from family, friends, or co-workers. You can also search for someone near you through trade organizations like the The National Association of Tax Professionals. Ask for references and check them. You should interview a tax preparer before you hire the person.

Tax preparer responsibilities

One thing a tax pro is unlikely to do, research shows, is get you a bigger refund than you're eligible for. Having an expert do your taxes also doesn't guarantee that your return will be error-free. But tax preparers do have a good reason to make sure your returns are accurate. They can be subject to civil penalties and barred from practice for knowingly understating your tax liability or overstating a refund claim.

Preparers aren't required to review all of your tax documents or statements to independently verify your information. But they do have to make reasonable inquiries if the data appears incorrect or incomplete relative to your claimed deductions.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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