Average Cost of Tax Preparation for LLCs: A Data-Driven Analysis

If you’re a limited liability company, how much does it take to prepare for taxes? Is it worth having an in-house team do this or should you consider outsourcing it? Should you make your tax preparation a n all-year activity or should you bother about it come the tax season? This articles aims to answer all these questions and more.

There are several pros and cons to each of these approaches and there’s no one-size-fits-all solution. To make the most of your operational dollars, it’s imperative that you make informed decisions at each stage of the process and with the help of this article, you’ll be able to do just that.

Average Cost of Tax Preparation for LLCs

Based on Revenue and Location

Tax preparation for an LLC can be slightly lower than for larger corporations but still requires a thorough understanding of business finances. The tax prep still includes itemized deductions and other financial implications, making it more complex than basic tax filing.

On average, LLC owners can expect to pay around $750 to $1,500 for CPA services. However, the average cost of tax preparation for LLCs typically ranges from $500 to $1,200. More complex LLCs or those with significant revenue may incur costs exceeding $1,500.

The average costs for LLCs vary depending on their revenue bracket and regional variations. The higher revenue the business generates, the more taxes it would have to pay resulting higher CPA costs. Where the company is registered along with the region or state your company is based in can impact tax preparation costs.

Breakdown by Service Provider

The cost of tax preparation is also influenced by whom you hire. You could opt for either a professional CPA/CPA firms or enrolled agents.

Most companies opt for CPA firms. The average hourly fee for CPAs ranges between $150 and $400, depending on the location and their expertise. You should procure the services of a CPA with industry experience.

For example, if a CPA charges $200 per hour and takes 5 hours to prepare an LLC’s taxes, the total cost would be $1,000. To be safe, you should allocate a buffer in case the CPA takes longer to prepare your taxes.

Another option your company can explore if you’re on a tight budget is enrolled agents. These are tax professionals authorized by the IRS to represent taxpayers. Enrolled agents are typically less expensive than CPAs and would cost an LLC between $100 and $300 per hour.

You can also enlist tax preparation chains for tax season. These companies specialize in tax preparation services. The costs can be a bit more expensive than a local CPA firm, but these are tried-and-tested tax return partners.

Thanks to technology, companies can use tax preparation software to simplify and lower the overall cost of tax preparation. Some software offers free basic services, but LLCs would need premium packages for their tax prep needs. Tax software can cost between $0 and $70.

Cost Variations by LLC Complexity

The complexity of the LLC can impact how much the company has to spend for tax season. A simple LLC or a single-member one with a small revenue would have to pay less than a moderate LLC or multi-member or single-member with employees. A simple LLC only needs to prepare Form 1040 for income generated and Schedule C for expense reports.

Meanwhile, complex LLCs or those with multiple income streams must pay more than the others. Multi-membered LLCs must file Form 1065 to report credits, losses, profits, and deductions related to the business, Schedule K-1 documents for each LLC member, and these individual members must file Schedule K-1 to report income, deduction, and credit share received from the LLC.

CPA Costs for Small Business Tax Preparation

The company’s business structure can affect the complexity of its tax preparation process, affecting the CPA fees. For example, a sole proprietorship is relatively straightforward, involving self-employment tax and income tax.

Businesses that employ staff can expect to pay more than those without any staff. The bigger the company and the higher the revenue, the higher the preparation fees.

CPA Cost Breakdown

Most CPAs don’t charge an initial fee, so most of the time, you won’t have to worry about getting charged if you’re canvassing for options.

The CPA’s billing methods can impact your overall costs. Some CPAs prefer charging an hourly rate between $150 and $450. Their rate usually depends on their expertise and service complexity. Meanwhile, the fixed fee usually involves standardized tasks like tax preparation. You can expect between $200 and $2,000, depending on the tax situation intricacies.

There may be instances where the CPA charges extra fees. For disorganized or incomplete files, this would cost approximately $166. Filing extensions cost approximately $56, while there’s an IRS audit representation of $902. These fees are charged only as needed.

You can expect to pay more if you enlist a CPA for tasks beyond tax season, like bookkeeping. CPAs charge between $150 and $450 for bookkeeping. There’s usually a flat transaction fee for payroll preparation, meaning the more members there are on your payroll, the bigger the fee they’d charge. If you procure a CPA for state and local tax returns, you’d have to pay an average of $300.

Regional CPA Cost Variations

Where the CPA is based and specializes in can impact their costs. CPAs charge more in cities like New York, Atlanta, Los Angeles, Boston, and Chicago. CPAs generally charge more for companies located in urban areas than rural ones.

Factors Influencing LLC Tax Preparation Costs

Various factors affect tax preparation fees, and understanding their impact is vital to one’s overall tax preparation.

1. LLC Structure and Tax Classification

A single-member LLC pays taxes like an average tax preparer but declares its business expenses. Fewer tax forms are involved, making it simpler and cheaper to prepare itemized deductions and file tax returns.

Multi-membered LLCs involve more tax forms, and each member has to submit a tax form about LLC taxes, which is why these companies are often charged more.

An LLC is treated as a corporation, partnership, or part of the owner’s tax return (disregarded entity). If the LLC has more than one member, it’s charged as a partnership by default. If members choose to be taxed as an S corporation, all tax obligations are coursed through the LLC owners. If the LLC decides to be treated as a C corporation, the company is taxed directly as a separate business entity.

2. Business Complexity

Several factors affect a company’s complexity, which can raise the costs of the tax professional handling the tax prep work.

These factors include the number of transactions within the tax year, types of income, the number of states where the company operates, and international operations. The wider the company’s scope, the higher the taxes it would have to pay.

3. Additional Schedules and Forms

The more schedules and tax forms are involved in one’s tax preparation services, the higher the tax professional charges. Here are the costs for common forms charged by LLCs:

• Form 1065 (Partnership Return): Approximately $733.
• Form 1120 (C Corporation Return): Approximately $913.
• Form 1120-S (S Corporation Return): Approximately $903.
• Schedule C: Approximately $192.

The more complex the LLC business structure, the more forms it must prepare for tax season. Companies that require more forms pay more to their tax professionals.

4. Industry-Specific Considerations

The company’s industry can also impact tax preparation fees. Companies in real estate, healthcare, technology, and professional services usually pay more for tax preparation services because their needs are more complex.

DIY vs Professional Tax Preparation: A Cost-Benefit Analysis

If you’re a business owner, you might be tempted to file your own taxes to lower overall costs. This may be advantageous if you’re a sole proprietorship that files business taxes as your own taxes. However, this may be a time-consuming endeavor.

Suppose you spend 20 hours preparing for tax because you had to study tax law and ensure you have all the forms prepared. You should consider your hourly rate and preparing for taxes as additional work.

If you think of this option, if all costs are lower than hiring a tax preparer, you might spend too much time figuring out the tax code and collating all documents; you can save more time and money by seeking professional help. While there are tax software that can potentially bring down costs, you still have to spend time uploading relevant forms and supporting documents.

With a professional who knows the ins and outs of business taxes, you may have to pay a substantial amount, but you can spend more time working on business operations. You’re also assured that there are fewer errors and missed deductions because these professionals are experts at what they do.

Consider this time-saving calculation when you consider hiring a tax professional for tax season: Compute the hours you’d have to spend doing your business taxes by yourself and subtract the professional prep hours. Multiply that amount by the owner’s hourly rate.

Hidden Costs and Considerations

You might want to enlist tax professionals beyond tax season. Here are some hidden costs that can impact your overall tax-related expenses:

Year-Round Tax Planning

Some CPAs offer year-round tax planning to help companies lower their overall tax liability and maximize tax credits and deductions. While you may have to spend more money, this service can reduce your overall tax obligations and help you maximize your budget. You get to learn more about legal loopholes to increase business profits.

Audit Representation

What if you get audited by the IRS? To lessen your chances of getting fired, you need to enlist the help of tax experts who can defend your company against possible scrutiny. IRS audit representation costs an average of $902.

Bookkeeping and Record-Keeping

Companies that have poor bookkeeping will have a harder time preparing for tax season. Sorting out disorganized records can set you back an average of $166. This would also increase the cost of tax preparation because the tax professional would need more time to sort out your documents.

Strategies for Reducing LLC Tax Preparation Costs

There are various ways to reduce your overall tax preparation costs:

Preparation Strategies

The earlier you prepare your tax forms and supporting documents, the better. There will be less paperwork involved and less margin for error. You can also file your taxes earlier to avoid the penalties of late filing.

Keeping things organized can also be advantageous in the tax filing process. You should prepare a checklist for all relevant documents to ensure you don’t miss anything. You can use digital organization tools to simplify getting organized.

Service Provider Strategies

If you work with a CPA firm or tax prep chain, you can try tactics such as negotiating fees and bundling services. You can negotiate for a smaller fee, especially with smaller firms. You can also consider bundling other services, such as payroll preparation and bookkeeping, to lower overall costs.

Technology Adoption

Tax software can cost between $0 and $70, but for LLCs, you’d need more than basic free services to ensure all business expenses are accounted for. Cloud accounting software can save you plenty of time and money.

Save Tax Preparation Costs with TaxCredits.net

While enlisting professional help may cost your company substantially, the cost is worth it in the bigger picture. You can avoid potential IRS scrutiny and errors and make your preparation process much easier. If you want to work with a CPA professional this season, sign up at TaxCredits.net.

FAQs

How much do most tax preparers charge?

Their costs depend on various factors, such as business complexity and the service provider. An average CPA would charge businesses between $150 and $240 per hour.

How much should it cost to do a tax return?

This would cost you an average of $200 to $350, depending on the complexity of your tax situation.

Is it worth paying someone to do your taxes?

If you’re a business owner with multiple income streams, it would be more practical to enlist a professional to handle your tax needs.

How much can a tax preparer charge legally in Texas?

There is no limit on how much a tax preparer can legally charge, so this would depend on various factors, like one’s business complexity and the service provider you choose.

How much does it cost to prepare a 1099?

This usually costs between $150 and $500, depending on how complex your situation is.