April is usually the deadline for filing tax returns on the previous financial year in the USA. This process often leads to questions: How do I determine my earnings? What can be deducted? Which forms need to be filled out? What are the deadlines and extensions? Something that often escapes many freelancers is that sticking to some small organization and recordkeeping habits throughout the year...
US tax law is complicated, and many employees and self-employed individuals find themselves feeling uneasy and panicked when their annual tax returns are due. In many cases, filing tax returns is an opportunity to save money on your taxes by deducting certain expenses from the tax due on earnings – however, all too often there is uncertainty about what expenses are actually eligible and to what extent they can actually be deducted. In particular, individuals who try their hand at filing a tax return for the first time usually have more questions than answers: What, for example, falls into the category of income-related expenses? What private costs count as expenses? What documents need to be kept and for how long?
A simple way to avoid the tax return dilemma is to seek the assistance of a tax consultant familiar with the ins and outs of tax law. Your tax consultant will help you to correctly prepare a complete tax return and with any other tax related matters like an audit – although one should not forget that a tax consultant’s assistance comes at a price. To ensure that good advice is not too expensive in the end, you should take a closer look at tax consultancy fees in advance, before the fee and processing costs end up ultimately exceeding the possible tax savings.
- How much does a tax consultant cost?
- An overview of tax consultant services
- Legislation: Is it illegal for a tax consultant to charge too much?
- Tax consultancy prices: When is it worthwhile to use a tax consultant?
How much does a tax consultant cost?
How much your tax consultant’s fees will cost depends on what kind of tax consultant you use. A tax consultant can range from paid software to help you file taxes, a certified public accountant (CPA), or even a tax attorney, if you have more complex legal tax issues. In many instances, tax consultants will be self-employed, but there are also large and small audit and accounting companies that offer their services. The basic criteria for the cost of a tax consultant is their expertise and the reputation they have built up over the years.
Tax consultants may charge additional costs for certain expenses incurred in the course of their activities, like travel and subsistence expenses.
An overview of tax consultant services
Sales tax and reimbursement of expenses
One category of tax consultancy costs may cover sales tax and the reimbursement of expenses, and it lists the following specific cost items:
- Sales tax: This tax may be applicable to goods and services depending on the state you run your business in
- Charges for postal and telecommunications services
- Document lump sum: Lump sum for photocopies or the provision of electronic documents
- Business trips: Travel expenses, overnight expenses, daily allowance, and absence allowance
Advice and assistance in fulfilling general tax obligations
This general heading covers assistance in all matters concerning the tax return – this incurs the most costs from a tax consultant. Tax consultant costs for this might include:
- Advice, information, initial advice: Oral or written advice that is not related to other fee-based activities may be charged with a tenth of a fee according to Table A. If it is a first meeting and the person seeking advice is a consumer, the tax adviser may charge a flat fee for initial consultancy.
- Expert opinions: Preparation of a written expert opinion evaluation with detailed research and explanations.
- Other individual activities: For example, if the tax consultant prepares an application for deferment of tax liability, adjustment of advance payments, or cancelation or amendment of a tax assessment notice.
- Tax returns: Preparation of income tax, corporation tax, wealth tax returns, sales tax advance returns, etc.
- Statement of retained earnings
- Surplus calculation for income from employment, capital assets, renting, and leasing: Preparation of documentation and supporting evidence for these circumstances.
- Examination of tax assessments and participation in external or customs audits: The tax consultant may charge a time fee.
- Other meetings/correspondence: The tax consultant may charge additional fees for meetings with authorities or third parties in tax matters.
Help fulfilling tax accounting and recording obligations
Tax consultant costs resulting from accounting support include, but aren’t limited to:
- Establishing an accounting system (time fee)
- General accounting (monthly standing fee)
- Payroll accounting (various fees depending on the activity, e.g. setting up and maintaining payroll accounts, carrying out payroll accounting)
- Preparation of financial statements (balance sheet and profit and loss account, notes, opening balance sheet, commercial balance sheet)
The tax consulting costs for payroll accounting depend in particular on the expense of the tax consultant and/or the preparatory work of the client.
Representation in and out of court
If you find yourself in a position where you need legal representation for an issue concerning your tax returns or accounting, you will need to consult a tax attorney for representation in appeal proceedings before administrative authorities, in administrative enforcement proceedings, and in court. While costs will naturally vary, it is standard for a lump sum to be paid for judicial assistance and assistance in administrative enforcement proceedings.
Legislation: Is it illegal for a tax consultant to charge too much?
Yes, the Treasury Department does ban certain pricing models: Anything deemed to be an “unconscionable fee” for providing tax consulting services is illegal, although the vague nature of this law can sometimes make it difficult to prove in court. It is also illegal for tax consultants to set a fee price based on information you provided in your return. Contingent fees (i.e. fees based on a percentage of your tax refund amount) are illegal in almost all circumstances.
Tax consultancy prices: When is it worthwhile to use a tax consultant?
The IRS release detailed filing statistics, and trends generally seem to show that most years, both individual and self-employed tax returns usually result in a reimbursement. According to the CPA Practice Advisor, the average cost for a full tax return is $273, including both state and federal filing fees. Given that in recent years, tax returns have averaged out at over $2,000 it may well be that the fee is worth it. However, in 2019 tax returns are down by $6 billion, which means that many people who would previously have received a reimbursement may now be handed an additional bill. It is up to you to evaluate your financial situation, as well as the recent trends in IRS reimbursement to decide whether it is worth paying tax consultancy filing fees.
Companies and small businesses will pay a higher fee for their tax return, particularly if their tax consultant also helps regularly with accounting procedures. However, as long as the business is profitable you can save effort and taxes in most cases with the help of a tax consultant.
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