Different hourly rate for business returns?

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#1
Riki_EA  
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118
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22-Apr-2014 1:57pm
Location:
Virginia
Just wanting to get some input. We charge an hourly rate for tax returns, and give the client an estimate (based on the prior year) with our engagement letter. (CPA practice, going on 20+ years, so we are unlikely to change from using an hourly rate, but we are up for suggestions.) For new clients, we look at the prior year's tax return and have a good idea of how long it will take us to do their return.

We charge the same rate for Form 1040s as we do for business/estate/trust returns, but that often seems to result in us undercharging relative to the market. We often get new S Corp or partnership clients that were paying a flat rate of $1,500 or $2,500 for a return that we end up charging in the $600 range.

For Form 1040s, we seem to charge in the same ballpark as the local market.

For those who charge hourly, do you have a different rate for Forms 1120S/1120/1065/1041 than you do for Form 1040 prep? It seems like the expertise in being able to prepare those returns should result in a higher hourly fee.

We figure that we have been undercharging our business clients, so we are thinking of using a different higher hourly rate for non-1040 tax prep for this coming tax season. We wouldn't bump the rate up too far all at once, but would increase it faster than the 1040 hourly rate. We increase our rates anyway every year, so this shouldn't shock our existing clients too much.

Another alternative could be moving to a flat rate, but clients often surprise us with extra complexity that we only figure out once we are working on the tax return, so that's why we have gone with an hourly rate. We don't think we could easily go to a "per form" rate.

Thanks in advance for any advice!
 

#2
sjrcpa  
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6471
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23-Apr-2014 5:27pm
Location:
Maryland
Implement value pricing. We all have hourly rates but we don't blindly bill by that. If it's a $1,500 or $2,500 return bill that, even if you incurred less. (I have no idea how you could only incur $600 for an entity return btw)
We use higher rates for more complex work. For example I bill more for estate, gift and trust work.
We bill more for M&A work, litigation support, etc.
 

#3
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679
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30-May-2014 1:43pm
Location:
MA
The hourly rate should just be step one in the process. This gives you an idea of how much time is in the project. Step 2 is then to bill as much as the market will bear. Do you think Apple really cares that each I phone costs them $38.94 ( I made that number up) to make? Yes they do but they do not use that for pricing their product.

I tell every client that they should use the “as much as possible” method for pricing in their own business. Manufacturing, donut shops, contractors, funeral homes, etc. it does not matter. Bill as much as possible.

When client’s then ask is that how you bill me “I say what do you think”. Of course we do
 

#4
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2611
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24-Jan-2019 2:16pm
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North Shore, Oahu
Business and entity tax returns require a higher level of experience to prepare and for which to provide support.

I would definitely suggest adjusting your hourly rate on those returns.

For several reasons, I do not explain my prices to my clients other than to say they are inline with industry averages given the complexity of the services provided. But that's just me - I'm not going to try to tell you to use a different method.

But I think you should up the overall price of your business and entity returns, yes. You'll likely get better clients, work less, and make more money,
 


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