My Tax Preparer Just Raised Her Fees — What Should I do?

It’s tax season, so as you might imagine I’m seeing an increase in tax-related questions from readers. But the most common tax-related questions I’m seeing have nothing to do with tax rules or tax planning. Instead, it’s these:

My tax guy just told me he’s going to be charging about 40% more this year for our return, relative to what he charged for the last several years. What should I do?
My tax preparer told me her price is increasing to [whatever dollar amount]. Is that reasonable for [a particular level of return complexity]?
My CPA’s hourly rate just increased to $250. That seems insane. Do CPAs really make $10,000 per week during tax season?*

As a CPA who works in the tax field — but who does not do any tax preparation other than our own return every year — I have something of a front-row seat to watch what’s currently going on in the tax prep industry. Why are these price increases happening? There’s a good reason.

The first and most obvious point is simply that we’ve had a lot of overall inflation. Per the Bureau of Labor Statistics, prices were about 19% higher as of the end of 2023 than they were at the start of 2020. So if your tax preparer simply wants to have the same standard of living, they probably need to be charging somewhere in the range of 20-30% more than they were a few years ago. (There has also been a tremendous amount of tax legislation in the last few years, which means that the work of keeping skills up to date and preparing returns is somewhat more, per return, than it used to be.)

But there’s more going on than that.

Per a recent CPA Trendlines survey, 42% of accounting firms are turning away work (i.e., the incoming inquiries exceed their capacity). And per a 2023 AICPA survey, 62% of accounting firms are currently culling clients.

Broadly speaking, there simply aren’t enough accountants right now to do all of the work that clients want done.

Per ZipRecruiter, the national average salary for an entry level accountant is $54,749. By contrast, per the same source, the national average salary for an entry level software developer is $100,265. Imagine that you’re an 18 year old college freshman, with a general interest in personal finance. If you think you’d make a good accountant, I’ll bet that you probably think you’d make a good software developer also. And if you have an interest in personal finance, would you rather study a finance-related field, or have much better personal finances? Accounting isn’t a “calling” sort of career where people will do it regardless of the compensation level. So it’s not particularly surprising that the percentage decrease in new accounting graduates is greater than the percentage decrease in overall college graduates.

And, as with most fields, there are a lot of people leaving every year as Boomers move into retirement. And so there are staffing shortages.

Point being, at the current price (whether we’re talking about price per tax return prepared, price per billable hour of a tax preparer’s time, or annual salary for tax preparers), the quantity demanded is significantly greater than the quantity supplied.

And if you’ve ever had a microeconomics class, you know what happens next when that occurs: prices go up. Suppliers eventually realize they can raise prices and still sell as many units as they have the capacity to provide (whether that’s hours of their time or returns prepared).

And that’s what’s happening.

There are tons of small accounting firms, so it will take time for this change to permeate the entire industry. So if you want to shop around, there’s a good chance you can find somebody operating in a low cost of living area who still charges a very low price. But, in general, you can bet that the prices for professional tax preparation will rise significantly over the next few/several years.

*This one in particular makes me laugh a bit. No CPA who works 40 hours per week is making 40x their hourly rate per week. Even with an excess of demand, that’s simply now how it works, because a fair bit of time has to be spent on assorted non-billable activities. For example, per the same 2023 AICPA survey mentioned above, an hourly billable rate of $204 (which was the average for people with 8-10 years experience) equated to an average annual compensation of $105,662 — or $2,032/week (i.e., 10x their hourly billable rate).

What is the Best Age to Claim Social Security?

Read the answers to this question and several other Social Security questions in my latest book:

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less

Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

You may unsubscribe at any time by clicking the link at the bottom of this email (or by removing this RSS feed from your feed reader if you have subscribed via a feed reader).

What's your reaction?

In Love
Not Sure

You may also like

Leave a reply

Your email address will not be published. Required fields are marked *

More in:Blog