TAX RETURN PREPARATION
Tax return preparation fees vary based on several factors. One factor is the type of return. In other words, is it an individual or business return?
By individual return this means a Form 1040. A Form 1040 can include various additional forms and schedules. An individual Form 1040 can include a business such as a sole proprietorship. The business income is generally reported on Schedule C of the Form 1040. The sole proprietorship means that the individual is self-employed. In such cases, that individual must pay self-employment taxes which are calculated using the Schedule SE. If the individual has stocks and bonds and other investment transactions, then a Schedule D may need to be prepared. Real Estate transactions and income from S corporations and partnerships are usually reported on Schedule E. Consequently, the fees involved in the preparation of an individual Form 1040 vary.
A business return is generally a partnership or a corporation. The use of the term LLC can be misleading. There is No LLC tax return form. The LLC is generally either a partnership or a corporation. Consequently, it uses the particular business form for either the partnership (Form 1065) or the corporation (Form 1120 or 1120S). A partnership must have at least two members. A corporation can either be owned by one individual or entity or several individuals and entities. Owners of a corporation are generally known as shareholders.
One Person LLC
A one person owned LLC is usually not recognized for income tax purposes unless it elects to become an S Corporation. In such case, the business income is reported on Form 1120S and the flow through income/loss and other items to be reported on the Form 1040 are placed on the shareholder's Schedule K-1 of the Form 1120S. Otherwise, the one person LLC 's income is reported on Schedule C of the Form 1040. If it is an S Corporation owned by only one individual, the business income is generally reported on Schedule E of the Form 1040.
Some LLC's are owned by one or more persons or entities and created for the purpose of reporting real estate transactions. Many of these are in the form of partnerships (Form 1065) and the income/loss is reported on Form 1065. The partnership income/loss flows through to each partner (in the partner's prorata share) on a Schedule K-1. The flow through to the partner's individual income tax return, Form 1040, from the Schedule K-1 is reported on Schedule E of the Form 1040.
Because tax returns vary in complexity, no fixed rate is generally quoted. A Form 1040 can be very simple and include only the very basic information of wages without any additional schedules. If the individual wishes to itemize, then Schedule A is needed. If the individual has interest and dividend income it is generally reported on Schedule B. Proceeds from broker transactions and other capital gains and losses are reported on Schedule D. Income from rental properties is generally reported on Schedule E. This information is to familiarize you with some of the complexity involved in the preparation of an income tax return and why fees vary.
Note: Fees vary depending upon the facts and circumstances of each case.
Additional Recordkeeping and "Clean Up"
Some tax returns are further complicated by the fact that the books and records needed to prepare the tax reurn are not reflective of the correct income and expenses of the business. There are many reasons for this.
One main problem causing this is poor recordkeeping. The books and records may not be accurate and need to be "cleaned up". Sometimes the necessary supporting documents are missing or unavailable. There are also times when the taxpayer believes something is tax deductible when it is not. This can also present problems.
To fix problems with the books and records is often very time consuming and expensive. It could easily take several hours and perhaps even several days to correct all the problems.
AVERAGE FEE RANGE
(As of August 2010)
Typically, the average national fee for the preparation of federal income tax returns that include preparation of the state return range in fee as follows:
*$50 to $649 for a simple Form 1040 (typically $129)
*$83 to $929 for Form 1040 with Schedule A
* $364 to $795 for Form 1120 Corporate Return
Keep in mind that these fees are for simple tax returns with books and records and supporting documentation in good order. Tax returns requiring complex computations and in depth analysis of records will be much higher. Hourly fees are generally $60 per hour for an expert. If your tax return requires considerable work (which many do), count on several hours of expert clean up to bring your books and records into proper order.