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Where, in the world of taxes, is the rise of the robots?
Right here online, surely, as H&R Block, Intuit's TurboTax, and others slug it out for your tax return. And yes, such do-it-yourself tax software has enjoyed a surge in market share of U.S. individual tax returns from 30 to 40 percent over the past six years, according to estimates from Intuit.
Yet the share that brick-and-mortar tax businesses command has remained stable, down just three percentage points to 57 percent last year from 60 percent in 2010.
So what gives with the human beings?
Most taxpayers who use flesh-and-blood preparers have seen their tax prep fees rise steadily, according to the National Society of Accountants' (NSA) biennial survey. In 2010, for example, the average fee for an itemized Form 1040 with a Schedule A and a state tax return was $229. From 2012 to 2014 that fee rose by an average of 5.4 percent a year, far above the U.S. inflation rate and even as the machines were slugging it out with cut-rate service and, in some cases, freebies.
Today, the average amount professional tax preparers charge for an itemized Form 1040 with a Schedule A plus the state return, one of the most common jobs, is $273 (the same as it was in 2014). Compare that with online services, where taxpayers with the simplest returns may be able to file for free, although fees for things like importing your prior year's return seem to find their way onto many bills. Taxpayers who itemize may be able to file online with major players for as little as $40; some of the slicker programs charge $72.
Most people with accountants remain loyal to them, said Kathy Hettick, a past president of the NSA. Like doctor-patient and lawyer-client, it's a relationship, after all. Who else gets to see your whole, stark financial life in the raw? Plus, many of us are glad to avoid putting in an average of five hours to do a 1040 and state return on our own, and maybe screwing it up.
"With fair warnings about fees, everyone understands that the cost of living goes up, and with the complexity of the tax code in recent years and the last-minute tax changes, people understand that fees continue to rise," Hettick said. (What clients do grumble about: The tax code getting more complicated to begin with.)
How much you pay depends largely on how complicated your finances are, so all these NSA numbers are just a benchmark. But with the IRS already processing returns, as of Jan. 23, the clock is ticking.
The NSA also looked at the average charged by region. Costs were highest in the New England and Pacific states and lowest in the East South Central region, which is made up of Alabama, Kentucky, Mississippi, and Tennessee.
You could use this information to bargain with your preparer if you feel you should be getting a better deal. You may have some leverage, with the robots vying for your business. Or your accountant may stand firm.
In fact, preparers sometimes charge you extra if, for instance, you show up with a mess of disorganized papers. Seventy-one percent of them charge a special fee for dealing with sloppy or incomplete files; the average is $117. If a client turns in information after a deadline, the average fee for that is $79.
"A lot of practitioners will charge more if someone comes in really late and wants to file on time, and those people are usually willing to pay it," Hettick said.
As more practitioners levy such fees, they are jacking up the main cost of their services, too, raising their fees by an average of 6 percent last year and planning to raise them again, by an average of 6.4 percent, for the 2017 filing season, the National Society of Accountants survey found. It also notes that the average annual gross income reported by its members dropped from $285,605 two years ago to $269,461 in the latest survey. (Hey, can we prepare your taxes?)
If your finances are getting complex and you're shopping around for a humanoid-or sizing up your longtime preparer-what should you look for?
The first step is to check that the preparer has an IRS Preparer Tax Identification Number, or PTIN. IRS.gov is also a good source of guidance in choosing a tax pro.After that, see if the preparer belongs to a professional organization like the NSA, the American Institute of Certified Public Accountants (AICPA), or others.
If she's taking continuing-education classes, that's a sign she's staying on top of the profession. Credentials that should give you some confidence include enrolled agent (EA), certified public accountant (CPA), accredited tax preparer (ATP), and accredited tax advisor (ATA). The IRS has a database of tax professionals, including CPAs, attorneys, and enrolled agents, who have self-reported their credentials.
One sign of trouble in your relationship, and of the little war over just who needs who here: If your accountant slaps a slew of fees on you, you may be a "problem client." Raising fees is the first way they deal with such clients, the report says.
The second? "Disengaging."