30 JUNE 2015

For the most part I enjoy preparing taxes. Each return is like a new puzzle to solve. There is a solution that gives the lowest possible legal tax, and I want to find it. Some people like Sudoku, I like tax returns.

Soon after I started working as a tax preparer for one of the national tax mills I noted the fees being charged seemed inconsistent. I might spend 25 minutes completing a simple return and the fee would be $275. I could spend 90 minutes on a more complex return and the fee would be $140. It puzzled me, so I set about trying to solve the puzzle. What I found rubbed me the wrong way.

Fees were set by the corporate office, and I had virtually no power to change them in any way. Nor could I accurately predict them. I found out the fee for a tax return at the same time as the client. The software worked sequentially. The screen showing the fee was near the end of the process, after all of the tax prep work was completed. Before progressing to the fee screen I would silently try to guess what the fee would be. I would often have to suppress my shock when the fee was revealed. It was not uncommon for my guess-timate to be off by 50% or more. (And I was the one doing the actual work!)

Most tax prep firms charge by the form, and we were no different. At first glance this seems like a fair way to charge for tax preparation service. The more forms required for a tax return, the more work the tax preparer has to do, right? 

In fact, this is rarely the case. The software we use auto-populates all of the forms from a single entry of client data. For example, once I enter your child's SSN and birth date, your W2 information, and the amount you spent on daycare all of the forms and worksheets to calculate your child credit, child care credit, additional child credit, etc. are done for me by the software. I don't have to lift a finger. There is no direct correlation between the forms generated and the effort required to generate them.

While I was never able to accurately predict the fees for the returns I was working, I did note some trends:

  • The fees were higher when the refund was large.
  • The fees were higher when the AGI was large.
  • The fees were higher when the tax filing deadline was close.

Essentially, the clients paid more when they could afford it or when they were running out of options to get their taxes completed on time. I think that's ridiculous.

I believe the fee charged should directly relate to the service rendered. I also believe both the client and the tax preparer should be able to accurately figure out what the fees will be as soon as the structure of the tax return is known - not wait to find out what the costs are after the return is completed. It seems so basic. I'm not sure why it isn't universal.