Will you reduce your fees???

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#1
FLAcct  
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As I was working on tax returns this season, I paid attention to those returns that had a fairly robust 2017 Schedule A but would be using the Standard Deduction in 2018 due to the increase in the Standard Deduction. I have been wondering if I should reduce my rates for those 2018 returns as it will take far less time to use the Standard Deduction than to prepare a robust Schedule A. I have also been wondering if clients will be expecting their fees to be reduced (at least the clients that know the difference between itemizing and taking the standard deduction).

I'm sure that all of us will have a good number of these clients next year and am wondering what your thinking is in this regard?
 

#2
CathysTaxes  
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I charge per form so if a client doesn't need Schedule A, they won't be charged. I usually have a small increase on the 1040 each year.
Cathy
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#3
jesella  
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I think it's a case by case thing... there are clients that are now so far from itemizing that they don't need to agonize over medical receipts or donation records anymore, and neither do we, and we'll acknowledge the simplification and charge them less. The rest, though, still need the analysis, planning, and recommendations related to these deductions, and we'll leave their full 1040 fee intact.

I should note that we don't charge specifically for Schedule A, and just leave the increase between 1040A and 1040 to cover that. The natural consequence to that is that most of our clients will pay the 1040 rate anyway because of other schedules, so the rate decrease will only apply to a small number of our clients and won't significantly impact our budget.
 

#4
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It will also depend on your state.

Here in AZ most of my clients who may not be itemizing on the Federal 2018 tax return will still be itemizing on the AZ return. So, no change in fee for most of my clients.
 

#5
jon  
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I do think the world changes next year. QBI and other changes will make returns difficult for those who have to go there, but in MN and at my age and lots of clients with no mortgage interest and they will be using the standard in 2018. Local charities and churches have already seen the drop off in contributions. The other side is - costs on our preparation side will still be increasing. I did tell certain clients that the standard will be what they will be doing next year. I will not go down in price, but if they need me on the change to standard deduction I probably will not go up. Also the State of MN has three proposals on the table as to what they will be doing and that will also come into play if they get one of those done.
 

#6
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Like AZUKHiker, my state still has itemized deductions and property tax credits so I still have to enter the Schedule A information anyway, although obviously being in Florida you don't have to deal with that as much.


Being big picture here: all prices are arbitrary. Being accountants, a lot of us want to make it feel more scientific or math-based, so we try to tie our fees to hours spent or to which forms and schedules are involved on a tax return, but really there is nothing inherent that makes an hour "worth" $X or a Schedule E "worth" $Y. And every time we write off a billable hour or discount a form, we prove that the pricing model we pretend to use is in reality a veneer for our judgment.

My judgment is that we're helping our clients navigate the most significant change to tax law in 30 years and I shouldn't be charging less for a slightly simpler tax return when I'm providing more value than ever to my clients.

CathysTaxes wrote:I charge per form so if a client doesn't need Schedule A, they won't be charged. I usually have a small increase on the 1040 each year.


Trust me; don't reduce your fee. If a client who itemizes in 2017 comes back in 2018 for a standard deduction return (all else equal) since they were happy paying $X last year, charge them the same. If nothing else, you're setting up a cookie jar reserve to smooth out the fees for when the client starts a small business or gets an inheritance or starts contributing to an HSA.

Tax software prices are going up (even Drake is increasing their prices this year!). Health insurance, up. Auto insurance, up. Long term care insurance, up. CPE prices, up (and if you're like me, you'll be taking more CPE than last year). Gasoline, up. Strawberry preserves, up. You'll be an even stronger professional next year than you were this year; why should you be the one that eats ramen (which, incidentally, I saw at my grocery store went up from 19c to 20c)?
 

#7
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CathysTaxes wrote:I charge per form so if a client doesn't need Schedule A, they won't be charged. I usually have a small increase on the 1040 each year.


In some states there are many occasions where clients are better off to itemize even with less than the Federal standard. I suspect that will continue to be case, perhaps even more frequently. Do you charge if you do this analysis? It would seem to be unfair to yourself if not.
 

#8
CathysTaxes  
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MichelleSCPA wrote:
CathysTaxes wrote:I charge per form so if a client doesn't need Schedule A, they won't be charged. I usually have a small increase on the 1040 each year.


In some states there are many occasions where clients are better off to itemize even with less than the Federal standard. I suspect that will continue to be case, perhaps even more frequently. Do you charge if you do this analysis? It would seem to be unfair to yourself if not.

If I find myself putting in extra time for different scenerios, then I adjust my fees.
Cathy
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#9
CathysTaxes  
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missingdonut wrote:Like AZUKHiker, my state still has itemized deductions and property tax credits so I still have to enter the Schedule A information anyway, although obviously being in Florida you don't have to deal with that as much.


Being big picture here: all prices are arbitrary. Being accountants, a lot of us want to make it feel more scientific or math-based, so we try to tie our fees to hours spent or to which forms and schedules are involved on a tax return, but really there is nothing inherent that makes an hour "worth" $X or a Schedule E "worth" $Y. And every time we write off a billable hour or discount a form, we prove that the pricing model we pretend to use is in reality a veneer for our judgment.

My judgment is that we're helping our clients navigate the most significant change to tax law in 30 years and I shouldn't be charging less for a slightly simpler tax return when I'm providing more value than ever to my clients.

CathysTaxes wrote:I charge per form so if a client doesn't need Schedule A, they won't be charged. I usually have a small increase on the 1040 each year.


Trust me; don't reduce your fee. If a client who itemizes in 2017 comes back in 2018 for a standard deduction return (all else equal) since they were happy paying $X last year, charge them the same. If nothing else, you're setting up a cookie jar reserve to smooth out the fees for when the client starts a small business or gets an inheritance or starts contributing to an HSA.

Tax software prices are going up (even Drake is increasing their prices this year!). Health insurance, up. Auto insurance, up. Long term care insurance, up. CPE prices, up (and if you're like me, you'll be taking more CPE than last year). Gasoline, up. Strawberry preserves, up. You'll be an even stronger professional next year than you were this year; why should you be the one that eats ramen (which, incidentally, I saw at my grocery store went up from 19c to 20c)?


When I took this over from hubby, he was charging way less, $100 for complex returns and even doing free pickup and delivery! He was using Lacerte REP at that time. I slowing increased Form 1040 and started providing a detailed list of forms and schedules and then adding a discount amount so the cheapskates would see they were getting a bargain. I made it a point to see what discount they were getting. Then as their returns got easier (no more Schedule As or Schedule Cs, the discount amount got reduced. Now the oldtime clients are paying almost what they should be paying.

The cheapest client (old, childhood friend of hubby's) complained what I was charging his daughter and son in law. I told him that I'm preparing six state income tax returns (now it's seven state and two local returns).

Then I dropped Lacerte and went with a package that was more affordable for my volume of clients. I now use Drake.
Cathy
CathysTaxes
 

#10
ATSMAN  
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In 2019 and 2020 I am expecting to lose many of the Std. deduction returns especially from folks who are comfortable using online services. So how do I make up the loss of income? I will need to establish a new business model, charging more for business returns, entity returns etc. This is easier said than done because I have to market myself to get more business returns.

Time to get some more education and make a new business plan!
 

#11
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This topic has come up in our firm. I have a partner who hates to bill and in his mind I know he is already thinking "I am going to have to go down in price because I am no longer doing a Schedule A".

In my mind, anyone who could have or more importantly wanted to do their own on Turbo Tax would have already done so. So I am planning on bumping everyone's fee about 3% like I do each year (assuming similar return). I will not be going down as 90% of the clients would not even notice. The key is to always go up. The software goes up every year, we give employees raises every year, health insurance is going up so the rates have to go up, Schedule A or no Schedule A.

I really do not think most clients are going to be thinking about how the new tax laws impact their tax prep fees. They are used to their fee going up each year and it will be no different next year.
 

#12
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CathysTaxes wrote:When I took this over from hubby, he was charging way less, $100 for complex returns and even doing free pickup and delivery! He was using Lacerte REP at that time. I slowing increased Form 1040 and started providing a detailed list of forms and schedules and then adding a discount amount so the cheapskates would see they were getting a bargain. I made it a point to see what discount they were getting. Then as their returns got easier (no more Schedule As or Schedule Cs, the discount amount got reduced. Now the oldtime clients are paying almost what they should be paying.


Ahh, I see -- you've kind of put yourself in a box by disclosing your fee schedule being calculated on a form-and-schedule basis (and you have some cheapskate clients). Still, there's got to be a way to retain some of your efforts at bringing people up in price.

ATSMAN wrote:In 2019 and 2020 I am expecting to lose many of the Std. deduction returns especially from folks who are comfortable using online services.


There might be a little of that, but TurboTax and its competitors have been very good at preparing 1040+Sch A returns for 20 years now, so as BerkshireTemp said so well "anyone who could have or more importantly wanted to do their own on Turbo Tax would have already done so."
 

#13
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I am not planning on changing my fees. I will also be increasing my fees, a bit, as I do each year.

My tax clients fall into two camps--they will remain under standard deduction, or they will continue to file Schedule A due to their high itemized deductions. Very, very few will be affected by that lone change, and so I have zero plans to change my fees. Heck, most of my time is spent gathering information from clients, anyway.
 

#14
ATSMAN  
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There might be a little of that, but TurboTax and its competitors have been very good at preparing 1040+Sch A returns for 20 years now, so as BerkshireTemp said so well "anyone who could have or more importantly wanted to do their own on Turbo Tax would have already done so."


That may be partially true but in my opinion folks who were previously itemizing and now choose std deduction may want to self prepare and save the prep fee, especially the energetic ones.

Over the years I have found two basic types of clients:

1) These people value their personal time much higher than the preparers time so if it means paying a few hundred to get the headache off their plate and spend their quality time on other things they enjoy they will always have someone else do the task.

2) These people always try to find ways to save money, whether it is painting their own house, yard work or tax prep if they can handle it. They value the savings more than the value of their quality time! One of my clients that I will be losing soon, said to me," I only want to pay for stuff i can't do myself!"

So only time will tell what happens in the next few years.
 

#15
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ATSMAN wrote:That may be partially true but in my opinion folks who were previously itemizing and now choose std deduction may want to self prepare and save the prep fee, especially the energetic ones.


Of course there will be a few like that. They don't value your services and if a competitor gave them a $25 off coupon they might leave anyway; you can't worry about them. But these people could have used software to self-prepare a 1040+Sch A already, so there must be some reason that they hadn't yet.

That said, you'll also find a lot of people will try the box and come back the next year once they spent six hours trying to understand the questions they were asked and print out a 100 page return.

CornerstoneCPA wrote:My tax clients fall into two camps--they will remain under standard deduction, or they will continue to file Schedule A due to their high itemized deductions. Very, very few will be affected by that lone change, and so I have zero plans to change my fees. Heck, most of my time is spent gathering information from clients, anyway.


It's always amazing how different different firms can be. All else equal, more than 80% of my clients who itemized federally in 2017 will take standard in 2018, although their Wisconsin itemization wouldn't be affected.
 

#16
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"Very, very few will be affected by that lone change,"

I am with donut on this one. Unless your client base consists of mostly elderly people with a lot of medical, I do not see how most of your clients will still itemize.

I tell clients that there are 5 main items most people need to look at for itemizing. 1. State income taxes 2. Real Estate Taxes 3. Car Excise taxes (these can be pretty high in Massachusetts & CT) 4. Mortgage Interest and 5. Donations.

If items 1,2 & 3 are going to be limited to $10,000 then very few will have $14k plus of Mortgage Interest and Contributions. Of course we are in the northeast and very few if any clients tithe and give 10% to the church. Most folks might give 1% or 2% to charity. Maybe in the south folks are more charitable.

We have a few clients with 7 figure incomes and I think even a few of them will not itemize.
 

#17
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In Massachusetts and CT, the state returns do not pull many items from the federal Schedule A but I have noticed many other states have their own itemized deduction worksheets. For tax pros in those states, I assume they are still going to have to prepare a state Schedule A and request all of the items anyway.

In Massachusetts, there is a Circuit Breaker Tax Credit based on real estate taxes paid for those over 65 and low enough income so that info might be still needed.

Anyone have a list of states more dependent on Sch A ? I sort of recall Alabama and Georgia having a detail deduction listing.
 

#18
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I think there are relatively few states that don't allow itemized deductions. Pennsylvania comes to mind immediately, but that might just be tax season Stockholm Syndrome. Generally the software does all this stuff for you if you enter it on the federal Schedule A input screens so it won't change anything on my end.

Under the new law, for now itemizing will be popular among upper-middle class single people, as once you get to the $10k in state taxes you only need $2k in interest and charity...
 

#19
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Complex state taxes will eventually get clients who decided to go TurboTax. A client who moved to Arizona a few years back still comes to me. For 2016, I started asking him specific questions about his father in-law that in supports. For 2017 and forward, he now gets a special exemption because 'Dad' is now using a wheelchair. Client's daughter, who has a very simple return, moved to Florida from Illinois. Illinois increased their tax rate 7/1/17. Tax programs default to a blended rate. She would have owed because she didn't know about the new form SA.
Cathy
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#20
ATSMAN  
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In Massachusetts, there is a Circuit Breaker Tax Credit based on real estate taxes paid for those over 65 and low enough income so that info might be still needed.


I am finding MA DOR auditing or verifying a lot of these returns in the last two seasons. I think there is a lot of false claims on this one.
 

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