MW How much should you be paying for tax prep? Read this first.

Andrew Keshner

There are plenty of free tax-prep options - but they aren't the best route for everyone

When it comes to taxes, the rules on income, deductions and credits are complicated enough.

Then comes the guesswork about tax preparation: How much should someone pay for tax-prep software or an accountant? Do they need to pay for professional tax help or can they do it on their own? And what if they end up getting charged more than they originally thought?

The Internal Revenue Service started accepting 2024 income-tax returns late last month, and the agency expects to receive more than 140 million returns before the April 15 tax deadline.

Until then, people will have plenty of free and low-cost ways to do their taxes - as well as some pricier options. An accounting firm's hourly rate may range from $150 to $450 depending on expertise, said Elizabeth Young, the director of tax practice and ethics at the American Institute of CPAs.

The trick is to understand which price point works best for a given person or tax situation.

It's not always easy, as one puzzled person said on Reddit (RDDT), wondering if a $150 accountant's fee was reasonable for an easy tax return. It was a decent price, replies said. But if it was a simple tax return, the person could try doing their own taxes for free next year, the replies added.

The calculus on how much to pay hinges on the complexity of a person's financial life, said Mark Baran, a managing director in the national tax office of CBIZ, a professional-services advisory, in Washington, D.C. It also depends on whether a person is willing to devote time to doing their taxes versus paying for a professional to do it, he added.

People will spend an average of $290 on filing their tax returns this year, according to IRS estimates. Individuals will pay $160 on average for tax prep, while the typical business owner will pay $620. Overall, that's a more than 7% increase from last year's projection of $270.

What to know about free and low-cost tax preparation

Many people have straightforward financial lives that can be handled with no-cost tax prep, or with lower-cost online options that generally cost up to $100.

Major tax-prep providers like Intuit's $(INTU)$ TurboTax and H&R Block $(HRB)$ say they can do "simple" federal income-tax returns for free. The IRS also has two different free filing options equipped for these types of returns.

So what kind of income counts as straightforward or "simple"?

That includes wage income, which is reported on a W-2, and smaller amounts of interest income under $1,500. It generally does not include investment income where a capital gain or capital loss needs to be reported, or money paid to gig workers or self-employed workers.

The standard deduction, the student-loan interest deduction, the earned income tax credit and the child tax credit are common and widely used tax breaks that are supported on these tax-prep platforms.

To be clear, there are fine print and restrictions on all of these services, whether public or private, so check out the details before you sign up for any tax prep that's advertised as "free."

The IRS's own free tax prep program, called Direct File, is available in 25 states and also allows users to file free state income-tax returns. Its eligibility checker tries to determine whether a taxpayer can use it based on their tax needs. Restrictions barring use begin once a household's income reaches more than $125,000, depending on filing status.

Many Republicans want to shutter Direct File, but supporters hope it becomes too popular to scrap. Treasury Secretary Scott Bessent has said the Direct File platform will be working this tax season, and that he would study whether to keep the program in future years.

Then there's the IRS's Free File program, a partnership with eight tax-software companies. The specific platforms may let users do more than a simple return. However, the program is only open to people making up to $84,000. Specific software offerings through Free File may only apply to people making less money than $84,000, and filers may have to pay to file their state-income tax return. H&R Block and TurboTax aren't a part of the IRS Free File program.

There are differences between what programs like TurboTax and H&R Block can do compared with the IRS programs. For example, Direct File can handle health savings account contributions but not dividend payments. TurboTax and H&R Block's free editions can support dividend payments up to a certain amount, but not health savings account contributions.

Why federal regulators have eyed Intuit and H&R Block

The companies have tiered pricing where users pay more for increased levels of support. Federal regulators have previously alleged the companies tricked customers into paying for tax-prep services they thought were free of charge.

Intuit is currently appealing a Federal Trade Commission cease-and-desist order after settling a lawsuit with state attorneys general in 2022. "Intuit looks forward to defending itself in front of a neutral arbiter and has always been clear, fair, and transparent with its customers and is committed to free tax preparation," a company spokesperson said.

Earlier this month, the FTC finalized an order with H&R Block mandating that the company make it easier for users to switch to a cheaper option. The company said many of the required changes have already been made, or are in the process. "We are pleased to put this behind us so we can focus on serving our clients during the 2025 tax season," a spokesperson said.

Should you do your own taxes, or hire an accountant?

The free and low-cost platforms come with some customer service attached. But it's still the taxpayer's responsibility to complete their return.

If a person doesn't have big year-to-year changes in their life, such as a new job, new income sources or a new child, that could be a good argument for doing their own taxes, Baran said.

On the other hand, "if you really are looking for a certain type of expertise, you are interested in full service or you anticipate or you have experienced some changes that you feel might need an extra set of eyes," a professional preparer like an accountant, tax lawyer or enrolled agent may be the better route, Baran said.

Factors that can complicate a person's tax situation include multiple investments, passive income and owning a business, said Young of the American Institute of CPAs. The need to file income-tax returns in multiple states also heightens the degree of complexity, she said.

A taxpayer's ability to stay organized and turn over all needed information also plays into the total cost. "The more organized you are, the less work a tax preparer has to do," she said.

How to calculate your tax-prep fees

There are two approaches to professional tax service: a fixed price by the particular document or task, and an hourly rate.

To get a sense of going prices, Young suggested using a tax-preparation fee calculator from the National Society of Accountants. That can give users a starting point on potential cost by the type of document and the state. For example, the average fee for filing a 1040, a tax return's core document, is almost $250 in Alabama and $500 in Wyoming.

If a person wants tax advice in addition to completion of a tax return, that's a powerful reason to seek out a professional, Baran said. Here, someone would be paying for insights about tax-efficient ways to reach short- and long-term financial goals, he said, such as deciding a yearslong strategy to avoid hefty tax bills in retirement or planning on when to carry out transactions with big tax consequences, such as a home sale.

Working with a pro is a chance to "identify the opportunities, pitfalls and landmines they may not have considered," Baran said.

Lastly, don't discount the mental energy and time savings that can come from handing off tax work to a professional. Anxiety over personally doing taxes is a real problem for many people, polls show.

"Sometimes, people just want very experienced people doing their returns," Baran said. "They will pay extra for that."

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-Andrew Keshner

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February 04, 2025 15:53 ET (20:53 GMT)

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