Filing taxes is an essential part of personal and business financial management, but many taxpayers are left wondering: How much should my tax return cost? The price of filing a tax return can vary significantly depending on several factors such as the complexity of your tax situation, the type of professional assistance you seek, and the methods used to file your return. In this blog, we will break down the typical costs associated with tax returns, what influences those costs, and what you should expect to pay to file your taxes.
The Average Cost of Filing a Tax Return
According to the National Society of Accountants (NSA), the average cost of filing a tax return can range significantly. For a basic, straightforward return (e.g., a single filer with no itemized deductions), the cost can be as low as $150–$250. However, more complex returns, such as those involving itemized deductions, self-employment income, rental properties, or investments, may cost anywhere from $300 to $1,000 or more.
Let’s break this down into categories to get a better understanding of how much tax returns typically cost depending on your situation:
1. Basic Tax Return (Form 1040)
For individuals with a simple tax situation, such as standard wages and no deductions beyond the standard deduction, the cost of filing a tax return is generally on the lower end of the spectrum. For a Form 1040 (the standard tax return form), the average cost is around:
- $150 to $250
2. Itemized Deductions (Schedule A)
If you have deductions such as mortgage interest, medical expenses, or charitable contributions, you’ll need to file an itemized return using Schedule A. This makes your return more complex, and the cost can increase accordingly. The average cost of filing a tax return with itemized deductions is generally:
- $300 to $500
3. Self-Employment or Freelance Income
If you are a freelancer, contractor, or small business owner, the cost of filing your tax return may be higher due to the additional forms and calculations involved. Self-employed individuals typically need to file a Schedule C for reporting business income and expenses, and they may also be required to pay self-employment taxes (SE tax). The cost for these types of returns is usually:
- $400 to $1,000
4. Investment Income (Schedule D)
If you have income from investments such as stocks, bonds, or rental properties, your tax return will require additional forms. For example, if you have capital gains, you may need to file Schedule D. Similarly, rental properties will require Schedule E. Depending on the complexity, filing these returns will likely cost:
- $400 to $800
5. Rental Property Owners (Schedule E)
For those with rental property, your return will be more involved, requiring detailed income and expense reporting on Schedule E. You may also have to account for depreciation and other tax credits, which can increase the time and cost of preparation:
- $400 to $700
6. Business Taxes (Corporate Returns)
If you are filing taxes for a corporation, partnership, or LLC, the cost can go up significantly. Corporate returns can require multiple schedules and forms, such as Form 1120 for corporations or Form 1065 for partnerships. The cost for business tax returns varies but typically starts around:
- $800 to $1,500+
What Affects the Cost of Your Tax Return?
Several factors influence the price of filing a tax return. These include the complexity of your financial situation, the type of professional assistance you use, and the method of filing. Let’s explore some of these factors in more detail.
1. Complexity of Your Tax Situation
The more complicated your financial situation, the higher the cost. For example:
- Multiple sources of income (e.g., W-2 income, freelance, rental properties)
- Deductions (itemized vs. standard)
- Investments and capital gains
- Business ownership or self-employment
Each of these factors requires additional forms, documentation, and time to properly prepare, all of which increase the cost of your return.
2. Hiring a Tax Professional vs. DIY
The cost of filing can also vary depending on whether you choose to do it yourself or hire a professional.
- Tax Software: Many taxpayers use software programs like TurboTax, H&R Block, or TaxSlayer to file their taxes themselves. These tools often offer pricing tiers based on the complexity of your tax situation. Basic returns may be as low as $40–$100, while more complex filings could cost $200–$500 for the software itself.
- Tax Professionals: Hiring a Certified Public Accountant (CPA), Enrolled Agent (EA), or tax preparer can add significant cost but also offers the benefit of expert guidance, personalized advice, and help with audits. The cost of working with a tax professional will vary based on their experience, your location, and the complexity of your return.
3. Additional Services
Some tax professionals charge for additional services beyond the preparation of your return. These can include:
- Audit Support: If your return is audited, additional fees may be charged for representation and paperwork.
- Tax Planning and Advice: Some taxpayers seek year-round tax planning or financial advice. This can also increase the overall cost of services.
4. Location
The cost of tax preparation can also vary based on location. Urban areas tend to have higher rates due to the cost of living and demand for services. Additionally, professionals in larger cities or those with more experience tend to charge higher fees.
What Should You Pay to File Your Taxes?
While the average costs mentioned above provide a general guideline, what you should pay depends on your financial situation and your level of comfort with filing taxes. Here are some tips on what to expect and how to manage your tax return costs:
1. Simple Returns (Under $250)
If you have a simple tax situation with no complex deductions or additional sources of income, you should expect to pay anywhere from $150 to $250. This can be through online software or a basic preparer.
2. Itemized Deductions or Self-Employed (Under $500)
For those with itemized deductions or self-employed income, a cost of $300 to $500 is reasonable. This is often the price for returns that require additional schedules or more detailed paperwork.
3. More Complex Situations (Over $1,000)
If you are filing a business return, have multiple rental properties, or need specialized advice for investments or tax planning, your costs could exceed $1,000. Be sure to ask your tax professional about what is included in the price to ensure you’re not surprised by any hidden fees.
How to Keep Tax Preparation Costs Low
- Organize Your Documents: The more prepared you are with your tax documents (W-2s, 1099s, receipts, etc.), the less time it will take to file your return, and the lower the cost will be.
- Consider DIY Filing: If your tax situation is simple, using online tax software may save you money. Most software companies offer free filing options for straightforward returns.
- Shop Around for Professionals: If you opt for professional tax preparation, get quotes from several professionals to ensure you’re getting a fair price.
- Invest in Tax Planning: If you have a complex situation, consider scheduling a tax planning session with a CPA or EA before tax season begins. This can help you avoid surprises and ensure you’re taking advantage of all tax-saving opportunities throughout the year.
Conclusion
The cost of filing a tax return can vary depending on a range of factors, but understanding what to expect can help you budget appropriately and make the best decision for your financial situation. Whether you file yourself using tax software or hire a professional, knowing the average costs for different types of returns ensures that you’re not caught off guard. Make sure to consider your specific needs and choose the filing option that works best for your unique circumstances, and remember: a little upfront investment in professional help may save you money in the long run through tax planning and error-free filing.