Get new articles by email:

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning.

Join over 20,000 email subscribers:

Articles are published every Monday. You can unsubscribe at any time.

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).

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"
Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. The information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2024 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My Social Security calculator: Open Social Security