270 - Tax Pros - You Get What You Pay For

On today’s episode of the podcast I’m diving into tax preparation and what comes with hiring a tax pro.

Don’t forget, Thursday, February 23, I’ll be hosting a launch party for my law firm at 9am PST/12pm EST. We’ll be sharing client horror stories and legal pickles you’ve experienced and we’ll dive into examples of how working with an attorney can help. Just in the past few weeks I’ve drafted some new program terms for a client who’s had issues with people sharing program content and leaving the program early. I’ve also worked on a demand letter for a client whose invoice is 6 months overdue. It happens to all of us and during this launch party I’ll be sharing how the law firm can help. Register to join the launch party at https://www.bradendrake.com/launchparty

When it comes to hiring a tax professional, you get what you pay for. And often, you pay for a lot that you don’t get too. When it comes to actually filing your income tax, federal and state income taxes are due every April 15th (unless it falls on a weekend and is then the following Monday) but we also have our business tax returns. If you have an S Corporation, a partnership, or a corporation, then you have to file a business return by March 15th.

If you have to file an 1120-S form for your S Corp or an 1165 for your partnership, you want to be reaching out to your tax professional like now. Sales tax returns are a whole different situation and we won’t get into that one now.

When it comes to filing federal income tax returns, you have a few ways you can do it.

1. You could technically do it for free by finding all the tax forms you need on the internet, printing them, filling them out and mailing them. I don’t think many people are still doing this because nowadays taxes are just too complicated. I equate them to Russian nesting dolls because you fill out one form then it tells you you need another form which leads to the next one and it becomes a very large stack of forms.

2. Use a DIY software as your “inexpensive option.” You’re probably getting a lot of ads for these now that it’s tax season for services like Turbo Tax. All of these are for 1040s only and simple 1040s which essentially means that all you have is a W2 probably and your return is super simple. By the mere fact that you have a business and are going to need to do at a minimum a Schedule C, this means there isn’t a software out there that is going to be free. Your options become H&R Block Online which is comparable to Turbo Tax. You also have Tax Act, TaxSlayer and others. I’ve price compared most of these and for Schedule C tax returns, they typically end up being $100 - $200. I personally use H&R Block every year and it usually comes to about $150-$160. The way they kind of get you and you start to think the $70 one is all you need but then you start answering the questions and are then prompted to upgrade based on additional forms you need.

3. Pay someone at a branch like H&R Block or pay a program like Turbo Tax to do your tax return. This typically runs $300 - $500. I would say that this is probably fine if you have your business, your bookkeeping is pretty done, your taxes aren’t that complicated, and you really just don’t want to do it on your own with the software.

If you go to a more traditional accounting firm, one that’s not a huge corporation, they may start around the top end of H&R Block. Most of them that are qualified and know what they’re doing will start in the $500 for a Schedule C and go up to around $2,000. The standard seems to be around $1,000 - $1,500. If someone is telling you they can do your business return for under $500, I’d probably run the other direction. At most places, the $500 - $1,000 range gets you minimal contact with your tax preparer during the process. If they have savvy systems set up they’ll have you answer some online forms to get your personal information, they’ll collect all your tax documents (often dropped off in-person), then they’ll complete your tax return and maybe (keyword maybe) do a quick call with you to review the return when you’re done before you sign it but I hear often that people feel pressured to hurry up and sign because preparers don’t have a lot of time to review because they want to get on to the next client.

When you get to the $1,500 mark with your tax return, you should be getting all those things I mentioned plus more time, care and attention and I would hope some ongoing tax strategy throughout the year. This is where the title, You Get What You Pay For, comes from. If you email your tax preparer with strategy questions throughout the year but don’t really get answers, it may be because you aren’t paying for tax strategy as part of your tax return. I find that the tax strategy piece really comes into play when you’re over $200,000 in revenue.

Most folks paying over the $2,000 mark for their tax filing tend to be paying in the $5,000 to $10,000 range for a suite of tax services which may or may not include bookkeeping. Bookkeeping service costs vary. The $100/month range is kind of a yikes for me. The popular bookkeeping software Bench used to charge $150 for a very stripped down service and now charge double that. More seasoned bookkeepers will start at $300 and up per month. My viewpoint is that if you’re not ready to spend at least that much on your bookkeeping, you’re probably better off doing it on your own or with one of our resources.

Here’s what our process looks like:

1. Do-It-Yourself with my $30 tools - the Bookkeeping Blueprint and the Tax Toolbox

2. Done-With-You services and support are available inside Profit Rx

3. Done-For-You bookkeeping - We offer this for just $400/month and which gets you detailed books, a monthly meeting with me to review your books, and that tax strategy I was talking about

This year, we’re also rolling out tax prep starting at $750 which includes a 30 minute wrap-up call to review your taxes and we’re offering half day and full day one-on-one Tax in a Day services. If you’re interested in learning about these one-on-one services, be sure to sign up for our launch party happening on February 23rd at 9am PST to learn how you can get first dibs on our one-on-one tax services.