The figure of $14,000 for tax preparation that you were charged for the itemized deduction has raised eyebrows as it seems unreasonably high especially in your case. On the whole, tax preparation fees are charged with respect to the degree of difficulty of the returns, however In your case where you have a W-2 income and a 1099, own a home and have a dependent, all that with a total family income not exceeding a $300,000-a-year flat rate, this figure appears rather unconventionally high.
Understanding typical tax preparation fees
In general, the fees for preparing tax returns are often determined according to how much time it takes, how many forms there are, and how complicated the return is. For example, preparing tax returns with itemized deductions (for instance mortgage, state income taxes, charity etc.) are relatively more expensive than tax returns prepared under standard deductions. According to the National Society of Accountants, which undertook a survey in the United States of America, the typical tax preparation cost for a Form 1040 with Schedule A return is approximately $300 and $500 depending on the geographical area and the service level offered. In more complicated cases that involve the likes of fully fledged small businesses and self-employed persons (who have 1099 income), fees may vary from $500 to $1,200.
However, despite the fact that more difficult tax returns entail more work such as itemized deductions, the proposed fee of $14,000 is still highly unreasonable. As reported by TurboTax et al. Tax preparation software companies, most preparers will charge no more than $2,500 to itemize deductions, even for the wealthiest of clients.
Red flags in your quote
Your situation presents a worrying warning signal, which is the way the fee is calculated. A tax preparer’s fee based on a percentage of the supposed tax savings is quite rare and most likely a con. Charges from tax preparers who are considered to be good practitioners are either a flat charge or an hourly rate charge depending on the level of sophistication of the return filed. Such practice is normal in the profession because it directs one to charge for the returns of aggressive tax planning which may include strategies that may provoke the IRS leading to audits.
There is also the issue of the tax preparer who suggested to you that you could cut $45,000 off a projected tax liability of $60,000. It’s true that employing tax strategies could reduce what one pays to the state, but such assertions about reductions shouldn’t be taken so lightly. It’s important to break down how they plan on reaching these cuts, and to get a written quote of their costs as well. Trustworthy tax preparers are slick about how much they charge, how they work, and certainly, do not make any wild claims for which there is no backing.
What a reasonable fee should look like
Given the details you’ve provided, including your wife’s 1099 income, your W-2 income, homeownership, and a dependent, a reasonable tax preparation fee should fall between $500 and $3,000, depending on the complexity of your return. Fees could be on the higher end if your wife’s 1099 income requires additional forms, like a Schedule C for self-employment income. However, even with these factors, a $14,000 fee is far beyond typical market rates.
Next steps
Several CPAs or tax preparers should be contacted for quotes, as their services will definitely be charged at a competitive rate. While doing this, remember to inquire how they charge for their services, and keep off experts who charge a percentage of your tax saving or promise too good to be true tax cutting figures. “Before getting down to business, the customer will be given a clear quotation based on the current tariff. This should help in getting billings that are cost effective for the services, which are often, scarily high advised charges.”
In addition, for high income earners over your household level, you can opt for credible tax applications like TurboTax and H&R Block which deals with both W#2 and 1099 income together with itemized deduction at a cheaper price.
Finally, you need to take a second here on the $14,000 fee suggested because it is indeed outrageous. Seeking the opinions of other professionals and obtaining estimates based on clear fees policies will enable you to find the best value for money and reduce the risks associated with overestimating the tax services needed.
