The Up and Up: Raising Rates Next Season?

[kcjenkins]

September 20, 2014
By Jeff Stimpson

 

Time again to address the annual most important detail of your practice: How much should you raise your fees?

 

According to a recent survey by the National Society of Accountants, more than three out of four practitioners raise fees annually or every other year. The average fee hike nationwide for last season averaged slightly more than 6%.

 

This year, said preparers, will bring unusual billable work from recent gigantic financial concerns for some clients – such as Obamacare.

 

Andrew J. Piernock Jr., of Piernock Accounting and Tax Services in Philadelphia, plans a 5% to 10% increase due to his spending more time on the ACA form, among other factors. “My year-end letter will include my fee increase, explaining the ACA form and any other tax reform that may or may not affect their return,” Piernock said.

 

Obamacare requires a host of new forms (Accounting Today) and in some cases time-consuming analysis of clients’ insurance. Not to mention hand-holding.

 

Key Largo, Fla.-based Enrolled Agent Jerry Gaddis of Tropical Tax Solutions has likewise warned clients that their bill will rise this year “because of the ACA,” he said. “If we have to reconcile insurance subsidies paid versus those earned, calculate the difference and include it on the return, that’s going to be a billable transaction. And that’s before trying to figure out if a client had government-approved health insurance or an approved waiver to avoid the individual shared responsibility payment. It’s going to be a lot of fun,” he added, “telling people they have to repay subsidies they never actually received.”

 

Slicing and dicing

 

Nationwide, fees last season (Accounting Today) were expected to average $261 for an itemized 1040 with Schedule A and a state tax return, the NSA survey found, compared with $246 reported the year before. The fee for non-itemized returns was also on the rise, to $152 for a Form 1040 and state return.

 

Other average fees nationwide: $218 for a 1040 and Schedule C, $590 for a 1065, $806 for an 1120 and $761 for an 1120S, $497 for a 1041 and $667 for a Form 990.

 

CFP Mary Langhorne at MGL Financial in Huntersville, N.C., charges by the form and plans to hike fees on about half the forms she handles. “My average non-senior citizen client will see an increase of 8% to 10%,” she said. “I’m grandfathering the fees for low-income senior citizens who are existing clients. They generally are only filing 1040A or EZ, and I’m maintaining a 20% discount for all senior citizens.”

 

“This will be my first rate increase in four years,” she added. “Part of the reason for raising rates is the increase in cost of the professional software. I’m also incurring increased expenses due to CPE. I have my RTRP and will participate in the new voluntary program.”

 

“I increased fees 35% last year so the only increases this year will be slight for the small number of clients whose fees I didn’t increase for one reason or another,” said Cheryl Morse, an EA at Emerging Business Partners, Wellesley, Mass.

 

Allen Beatty, an EA at Apple Tax Services, in Jackson, Ohio, plans no fee increases but may tinker with other prices. “I’ve been giving discounts to [clients] for loyalty,” he explained. “I’ve noticed that now my prices on those are often much less than my competitors’. Thus this past year I reduced some of these discounts and I’ll continue to reduce more this year.”

 

New services and new risks

 

“I’m new so I can’t be picky, but I have priced a few clients out of my practice,” said Key Largo’s Gaddis. “And I no longer take new EIC clients. The potential preparer penalty of $500 per failure to meet EIC due diligence is too steep for my blood.”

 

“I’m not considering an across-the-board increase in rates, but feel that it has become necessary to charge for extra services that I perform,” said John Stancil, a CPA in Lakeland Fla. “More and more clients now seek some measure of tax planning, and I have not charged sufficiently for that in the past. I anticipate an increase for those and any other extra services I perform.”

[Jack from Ohio]

At my personal practice for tax year 2013, I raised my base rate 25% and several of the add-ons by the same percentage. 225 clients. 1 protested loudly, 4 asked about the reason for the increase, 220 never said a word or even a funny look.

I am instituting an increase for the clients that must file the ACA form this year but probably no other.

[Catherine]

Since I (generally) charge by form, my prices go up with each new form required.  The very few questions I have had on price I have pointed to the additional forms required this year and told the clients to take up the issue with their legis-vermin.

[Margaret CPA in OH]

Since I (generally) charge by form, my prices go up with each new form required.  The very few questions I have had on price I have pointed to the additional forms required this year and told the clients to take up the issue with their legis-vermin.

I am intrigued with charging by the form except that many forms can be easy with few entries or quite complicated with many entries.  How do you manage to be fair with, for example, a Schedule B with one interest and maybe one dividend, total exceeding $1500, and one with 8 interest accounts and a dozen or so div entries some with foreign tax credit and maybe municipal allocations?  And then Schedule A has its own issues from top to bottom!

[GeneInAlabama]

I am intrigued with charging by the form except that many forms can be easy with few entries or quite complicated with many entries.  How do you manage to be fair with, for example, a Schedule B with one interest and maybe one dividend, total exceeding $1500, and one with 8 interest accounts and a dozen or so div entries some with foreign tax credit and maybe municipal allocations?  And then Schedule A has its own issues from top to bottom!

 

This is also my reason for not charging by the form.  I would like to find an equitable way to file by the form without gauging the client.

[Catherine]

I am intrigued with charging by the form except that many forms can be easy with few entries or quite complicated with many entries.  How do you manage to be fair with, for example, a Schedule B with one interest and maybe one dividend, total exceeding $1500, and one with 8 interest accounts and a dozen or so div entries some with foreign tax credit and maybe municipal allocations?  And then Schedule A has its own issues from top to bottom!

 

I charge full freight for each and every form -- and then discount (shown on the bill) for simple forms.  

 

Say for example my Sch B fee is $50 -- and someone has one account at Bank X that earned $135 interest. I will discount that form $45 (down to $5).  Same with the AMT form -- prepare it and charge it on EVERY return -- then discount it for the simple returns (the just-out-of-college kid who makes less than the AMT personal exemption, etc).

 

Clients LOVE seeing that discount.  

 

I also have additional fees for any accounting that needs doing - that gets added as an hourly charge or is charged separately (depending on the client).  

 

Sch D/Form 8949 is $3 per item.  So if someone sells one share of IBM, it's $3.  If someone has a managed account with hundreds of trades -- well, you can multiply.  Even when the info is provided in a spreadsheet, I charge -- because I check it, line by line.  And find (rare) errors.

[Margaret CPA in OH]

Thanks for the explanation.  I just may try this out on these extensions I have.  I might also look at a few samples from this year and see how it might be different.  With (intentional) lack of business growth as I edge into retirement, I will feel the income decline but want to know that I am still providing the value to my remaining clients while charging fairly.

[Jack from Ohio]

I charge a Base Price (minimum) for every return. List what forms are included. Any other form is charged based on the complexity and extensiveness of the form. I too, put full freight price on the sheet and discount for the simple ones. This keeps in the client's mind, the amount I could charge them (establishing value) then I show a discount.

This is the place I go to when I hear the ubiquitous complaint: "Why is it costing me more than last year?" I point out that the fees are the same, but because of ________ the discount is less. "Would you prefer that I charge you the same every year with no discounts?" "The price would be consistent that way."

[Catherine]

And folks get SO excited getting a discount!  

[kcjenkins]

And 95% never question, the price is just the price.  Of the 5% who do question, most accept a simple explanation, those that don't should probably be either hiked up or fired next year.  The peace of mind you gain is priceless, and they can usually be replaced with some referral who will appreciate you.   

[KINGCHUCK1971]

I'm keeping my rates the same this upcoming season. I charge a $240 base rate. My clients haven't complained about my rates and have been faithful clients for years. I don't hang on to the PITA clients no more then 1-2 seasons. Some of the PITA clients miraculously changed and I have reinstated them as clients. 

[Lion EA]

I'm going to charge an amount that's fair to me for my time and effort learning about ACA for those new forms.  And, I might raise the amount I charged last year for the then-new NII forms.  I might even raise prices for anyone who sends me tax information after a certain date, maybe 15 March, whether or not I put them on extension.

[Jack from Ohio]

I'm going to charge an amount that's fair to me for my time and effort learning about ACA for those new forms.  And, I might raise the amount I charged last year for the then-new NII forms.  I might even raise prices for anyone who sends me tax information after a certain date, maybe 15 March, whether or not I put them on extension.

I agree with your position on this!!!