Many tax pros are undercharging clients: NATP

Tax preparation remains the bread and butter of firms but many undercharge for it, according to the latest fee study from the National Association of Tax Professionals.

Most tax pros prepare a mixture of simple and complex returns, and 18% prepare returns for those who need representation, the study found. Firms typically prepare between 101 and 300 returns each year, and nearly half (42%) of members derive 81% to 100% of their revenue from tax prep.

This year’s study also showed many tax professionals are undercharging their clients compared to their competitors, which leaves room for increasing fees.

“The most interesting results came by way of business impacts versus actual fees charged. Tax law changes typically bring increased returns prepared, which we expected in the data, but understanding the impact of tax law change and the pandemic on tax firms specifically was the most interesting,” said Jennifer Van Elzen, NATP director of member relations and analytics. “Tax pros had to pivot and change how they delivered their services to include virtual visits and curbside drop-off,” she said. “Also of note was that the percent of respondents who increased their services (38%) also saw an increase in expenses (48%) and revenues (46%) as a result."

“Despite the pandemic and the impact that has had on taxpayers, respondents did not have difficulty collecting payments, which really indicates the strength of their business practice and structure,” Van Elzen added.

Most respondents (64%) had at least 21 years of experience in the tax business. Almost all were an owner/partner in private practice. Around half (55%) said they’re still growing their practice.

Among other findings:

• About half of respondents saw an increase in individual returns last season, about one-third stayed the same, and 16% saw a decrease. 
• Overall, tax pros increased their fees an average of $10 since 2019 for individual returns. The average set dollar rate per hour increased $18 since 2019. The most common method of pricing for 1040 prep services is minimum fee plus cost based on complexity of return. 
• When tax professionals raise fees, they raise them for both new and existing clients.
• Other services commonly offered are bookkeeping, tax planning and payroll taxes.