Tuesday, February 26, 2013

Tax Preparation Fees

Q.  Why do fees for tax preparation keep rising? I find it's getting very costly. My income comes mainly from Capital Gains. I just don't understand!

A.  I may have the answer to your question. Of course, I can't explain why various preparers charge what they do, when they increase their fees, or even if they've increased fees. Largely it will depend on where they are located in the country. When I lived in Tucson back in the 1990s, the fees we charged were less than half of what they charged in Phoenix, so preparers in an affluent area will likely charge more.

Last year, filing 2011 returns, there was a substantial change in the forms for capital gains. Previously we had only Schedule D to deal with. Quite often we could take the totals on the 1099-B form prepared by your brokerage house, put in only the totals, and fire it off to the IRS, much the same way as we did for 1099-Int or 1099-Div.

Beginning with the 2011 returns, however, the IRS forced us to use Form 8949. There were 3 possibilities: a separate form for short term gains, a separate form for long term gains, and a separate form when no 1099-B was issued. Additionally, it became necessary to further subdivide this information depending on whether or not the brokerage house reported the basis information. Sometimes they do, and sometimes they don't provide it. Very few 1099-Bs have arrived from my clients as yet, but last year they weren't separated, so the only choice is to enter each security separately. What used to take minutes, now can take hours.

My hourly fee haven't increased in 3 years, but  multiply the total time necessary to enter pages of data by the hourly fee, and you can easily see why fees have risen, even though the hourly rate hasn't. When in doubt, you can always ask your preparer. He or she can give you a more complete analysis of your return and why they charged what they did.

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