Fees Charged

[RDNKCPA]

I have a new client this year with a 1040, Schedule A, Schedule E - Rental Property. He also has a 1065 LLC with 3 residential real estate properties.

This was one nights worth of work, start to finish. Set up, input of 2013 data, and review. The client was referred to me by a family member and I did both returns and e-filed for $500.00. He was using a CPA firm in Baltimore that charged him $2,500.00 last year. Once the firm had the data in the software and they rolled it over, all they had to do is enter w2 info, income/expense data from the property management company, and a few 1099INT's from year to year.

Was he grossly ripped off or am I way undercharging? I do this out of my house, so no overhead, and the only real costs that I have are the software and some office supplies (Paper, envelopes, folders etc).

I thought $500 was fair for a nights worth of work.

[joanmcq]

I would have charged more, but much less than the Baltimore firm! I work from a home office too. And my definition of 'took a nights work' is 6-8 hours, YMMV.

What's your per hour charge?

[WITAXLADY]

undercharged... $100 - $125 /hr - still have to collate, file and be responsible for

plus you did it so quickly cuz you are SO GOOD!!!

[RDNKCPA]

Right around $100.00, but I have some different rates for different clients.

I tend to charge by the return/job. Usually $125.00 for a 1040 with a sched A and two W2's, then up from there.

[jklcpa]

Sounds like he was grossly overcharged to me. Your fee might be light because it included the partnership returns too, but it sounds like there wasn't much bookkeeping involved.

I have a similar return where the husband and wife own a shopping center in an LLC taxed as a partnership. I spend a little more than a day on his LLC work because I have to summarize all of the shopping center data, reconcile bank accounts, tenant billing, and I give him a complete set of books for the LLC. His personal return is fairly quick with 2 W-2s, a couple entries each for interest and dividends, sometimes a cap gain transaction (usually a mutual fund), and itemized deductions. Higher income return, always with AMT and underpayment penalty because he sometimes doesn't pay the estimates. He also has 2 meetings for the return, and his bill is usually around $1200 for the LLC with all of that and maybe $200-300 for the personal depending on what's on it. This year will be a little more as I've raised my rates this year and he will be subject to the additional medicare tax and the tax on net investment income.

I have different rates for different functions since I am one person doing all. Top rate is $120/hr for accounting and tax prep, lesser rates for bookkeeping, clerical type work, assembly, stapling, filing. Even at that rate I know my fees are light compared to what others around here are charging.

One thing you said that I disagree with is that you said you have no overhead. While you don't have rent expense for office space, you do have all the other expenses that go with providing the product to your clients for paper supplies, insurances, licensing and permits, CPE, cost of tax and other software, the added utility costs of running your equipment in your home, etc.

[MsTabbyKats]

He was overcharged...BUT....some people think that their return is so unique and complex it takes s brain surgeon to do it...and they don't mind the cost. That is....until they realize it's not so complex.

I work out of my home too....no overhead....and my fees are low also.

The problem is....it becomes hard to raise them to "market", even with new customers who were referrals!

[HV Ken]

Was he grossly ripped off or am I way undercharging? I do this out of my house, so no overhead, and the only real costs that I have are the software and some office supplies (Paper, envelopes, folders etc).

Point 1: I think the answer to your question is BOTH! You undercharged yourself and the other firm overcharged.

Point 2: We do an entire seminar for small business owners on pricing strategies and considerations. From our studies, in general entrepreneurs will undercharge for their services (not taking into account ALL the costs, expenses, and other issues of operating their business), and female entrepreneurs tend to undercharge even more than males.

[Gail in Virginia]

This is one area I need to work on, but if we don't value our services enough to charge a decent price for them, why should our clients value them?

[Lion EA]

It's not just inputting the numbers, its UNDERSTANDING the importance of the numbers and making suggestions for next year. You undercharged. The CPA firm was about even with city CPA firms. I might be around $1,500 for both returns out of my home office.

[KINGCHUCK1971]

I agree that he was over charged at the firm and that you under charged. You do have overhead costs even though they may not be much. I would have charged $1,500 for the services rendered.

[chadlonetree]

I would have charged $335 for 1040 and $800 for 1065.

[Terry D EA]

Well I must be undercharging as well. Just complete a 1065 with 8 rental properties and charged $650.00. One partner has several other rentals and his individual carries an additional $500.00 charge. For my geographical area I am still quite reasonable. Work out of the home as well but expenses never go down and I usually only raise fees once every three or four years.

[Richcpaman]

RD:

Learn something from this.

Your new client was willing to pay $2,500 for his two returns. And you charged him $500. He would not have gotten out of my office for less then $800 for the 1065 and $400 for the personal. And I would spend a lot more time with him as well... And I live in MD...

There are several firms even I my rural area that want to start at $500 to do a basic 1040/SchA. I am not at that point yet, but most of my 1040's go out at least about $350.

And the Corp's/1065's/990's go out at much higher rates...

It really isn't about how much time it takes, its about client service and what the market will bear. I am not afraid of losing a client because of fees. (I used to be, not anymore...)

I have my "billing rate" at $150 an hour now.... If I spend 30 minutes with a client meeting with them to get the info, then my staff inputs the return, I review it to make sure its right (15 minutes), staff prints and assembles, then meet with them for 10 minutes at pick up (sometimes they just pick up) I have less than 1 hour in a return that pays $350.. When I did it soup to nuts, with no staff, it was about 20 minutes more...

So that would make my billing rate about $300 an hour...

When you are more efficient, YOU should benefit. Not your clients so much. Remember that.

If you get 10 returns done tonight, and you bill each one at $125, then that is $1,250. If it took you 5 hours, then that is sweet return... But, you then would not turn around and say, since I got them done in 5 hours, you are only going to bill them 1/2 or 1/3 of that....

Rich

[michaelmars]

Well I must be undercharging as well. Just complete a 1065 with 8 rental properties and charged $650.00. One partner has several other rentals and his individual carries an additional $500.00 charge. For my geographical area I am still quite reasonable. Work out of the home as well but expenses never go down and I usually only raise fees once every three or four years.

sounds way too cheap but as with every other post in this thread, we have no way of knowing the whole story. for example were you given adjusted QB files on each building or just a check book?, did you have conversations with the client re what to capitalize that took extra time? etc etc etc. Sometimes a rental property can take 10 minutes to get a p&l on and sometimes it can take 2 days.

As for the original post, perhaps the previous cpa had many meetings with the client to discuss entity selection, financial planning, maybe an hour spend on the pros and cons of a cost seg? It hard to second guess fees and even harder to give an informed opinion from the little that gets posted here.

I might charge one client $750 for a building and $2000 for another building that appears to be the same work but one fee includes his kids returns that are only needed because they are partners, also includes payroll for all his entities. there are a thousand variables.

[SFA]

In my office, I review, sign and invoice all the individual returns (another person invoices business and write-up work). Sometimes, the returns, when finished look so darn easy and simple, yet when I look at the time cards, they tell a different story.

We charge by the form and factor/adjust for the complexity of the form. We also charge an hourly rate for any work required prior to the start of tax return entries, such as compiling and organizing papers. This can be especially true when we receive QuickBooks backups that are a mess, or the classic shoebox of papers.

After all of that, I step back and look at the big picture to decide if the invoice is fair . . . and I do exercise some discretion in that area as well.

Our clients our like the goose that lays the golden egg. We do not want to fall on our sword over one return, when we are looking forward to a long and prosperous future with them.

Recently, we had a new client, who prior to pick up, tell us that she and her husband are unhappy with the invoice. They have called around and compared prices and believe we have pushed the limits. I am sure that they did not call HRB or Liberty! They have self prepared in the past. They itemize, have employee business expenses, and in 2013 they started a new business with home office, depreciation, travel, etc. The information needed to be organized prior to the start of their return. The price of the return was $320 plus $50 hourly. They think the return should be $225.00.

They are not the goose that lays the golden egg. I will have no problem saying goodbye to them.

On a final note, their criticism is helpful. We do need to stay informed of and sensitive to the prices of our competitors. I personally prepared that return and felt like I had done a good job for them. It does hurt a little to have them turn on me and diminish the value of our product. Oh well. NEXT!

[Richcpaman]

SFA:

After this: "They think the return should be $225.00."

I would have countered: "How about $425"

Then, I would have explained, how I arrived at the bill that I did. And why it was worth it. And that they could call me later and tell me where they got it done for $225....

Rich

[michaelmars]

when I get asked "is this a fair fee?" my stock answer is "no because I wanted to give you a break, based on time and value it should have been $XXX" I usually get a laugh and a check.. I have never had a client leave over fees. You need to let your clients know that its not the tax prep they are only paying for, its the knowledge, experience, your review of their lives, and suggestions that are worth your fee.

[SFA]

Then, I would have explained, how I arrived at the bill that I did. And why it was worth it. And that they could call me later and tell me where they got it done for $225....

Rich

Rich, thanks for the moral support. Actually, I did email a response. I thanked them for expressing their concerns and without getting defensive, sent them a .pdf of the invoice details, (which I do not usually reveal). I have not received a reply and they have not picked up their returns yet.

It's kind of ironic because just a few days prior, I had confronted an outside computer support company over their invoice. I was charged $166/hr x 2.5 hrs. I said I believed that was excessive. I have spent over $10,000 last year on a new server, four custom computers, peripherals, software and some tech support, They were not sympathetic and did not adjust their invoice.

[MsTabbyKats]

I never understood the"hourly fee".

If someone works slow....I should pay more?

But if someone "knows what to do...and does it efficiently".....I pay less?

I give a price....and then add that this doesn't include unexpected surprises.

[jklcpa]

I never understood the"hourly fee".

If someone works slow....I should pay more?

But if someone "knows what to do...and does it efficiently".....I pay less?

I give a price....and then add that this doesn't include unexpected surprises.

Yeah, none of the billing methods will be perfect. Charging by the form or line entry isn't any more accurate. That's why SFA adjusts the form charge to factor in complexity. I charge by the hour because I don't want the hassle of sitting down and figuring out a fee for each form, line entry, etc. I try to be fair where if I feel I'm slow or the fee looks a lot bigger than last year, I go back and compare the two to see where the differences are. If there are additional meetings, research needed, additional complexities that weren't in the prior year, then yes, the fee should be higher. If it's the same return as the prior year and it's a year that I've raised my hourly rate, then I automatically expect that the return will cost more by roughly that same % increase. If I feel that I should know something but am looking something up for my own assurance, then I don't charge that time. Likewise, I am not going to charge a client if I am stumbling with an input issue (how do I make my tax prep software do this?) or if my software or printer is having problems.

Like SFA, when I am done, I step back and look and the bill to see that it is fair. I don't have any complainers, and that tells me that I am probably undercharging on some.

[HV Ken]

I don't have any complainers, and that tells me that I am probably undercharging on some.

One of the best pieces of advice we feel we have received when we were developing our pricing structure was: "If none of your clients are complaining about your fees, then you are not charging enough."

You need to let your clients know that its not the tax prep they are only paying for, its the knowledge, experience, your review of their lives, and suggestions that are worth your fee.

The problem with the tax prep part of our industry is that the box stores make tax prep seem like merely a commodity. As Michael points out, we are not dealing in transactions, but rather relationships. This is what differentiates us from the box stores and is our value proposition and should be a major part of whatever our marketing is.

[RDNKCPA]

sounds way too cheap but as with every other post in this thread, we have no way of knowing the whole story. for example were you given adjusted QB files on each building or just a check book?, did you have conversations with the client re what to capitalize that took extra time? etc etc etc. Sometimes a rental property can take 10 minutes to get a p&l on and sometimes it can take 2 days.

As for the original post, perhaps the previous cpa had many meetings with the client to discuss entity selection, financial planning, maybe an hour spend on the pros and cons of a cost seg? It hard to second guess fees and even harder to give an informed opinion from the little that gets posted here.

I might charge one client $750 for a building and $2000 for another building that appears to be the same work but one fee includes his kids returns that are only needed because they are partners, also includes payroll for all his entities. there are a thousand variables.

The story was client turned his property management statement, interest statements, & W2's over to the CPA firm. A week later his returns came back with a bill for $2,500.00. The client questioned what value he was getting from the firm. It is the client perception that the firm was not into building a relationship. I was glad to do the return. Client was happy, and has already given a couple of referrals.

I will take a look at my fee structure, and I adjust when necessary. I had one client that balked when I raised their fee from $85 to $125, and I hand delivered their returns to them after work. They complained, but have come back every year.

I'm slowly expanding my base, this year I've gotten a bunch more referrals. Now to get my fees in line so I don't give away my work.

At the end of this tax season I'm upgrading computer, back-up device, and printer, so somebody has to pay....

Thanks for all of your feedback, it is much appreciated.

[HV Ken]

I will take a look at my fee structure, and I adjust when necessary. I had one client that balked when I raised their fee from $85 to $125, and I hand delivered their returns to them after work. They complained, but have come back every year.

You have a hard earned credential after your name - CPA. That is worth something!!