Storefront Tax Prep Charges

If you were to walk into a storefront tax preparation service and ask “how much will you charge to prepare my taxes” you will get a variety of nebulous answers that usually start with: “Well, that depends on how complicated your return is…”. If you request a complete estimate, you will be asked a series of questions (e.g., How many W-2’s do you have? How many dependents?) and then you will be given a range: “Roughly $XYZ, but we won’t know for sure until we do the entire return”.

There are a couple of reasons for this crazy pricing logic. First and foremost, tax preparation fees vary widely at storefront services depending on the time of year. You can take the exact same return in each week and have it prepared and the fees will be different each week. Generally, fees are the highest during “peak” (roughly the first 21 days in February) and the last seven days before the April 15 deadline.

Second, storefront tax preparation fees are calculated by the preparation software based on how complex your return may be, including how many items you bring in. For example, tax prep software will charge a “base fee” that includes a fixed number of W-2s – say three. But if you come in with five W-2s, you will be charged extra for those two additional W-2s (even though they are all added up to one number on the return).

After you have your return done, you are usually given an invoice with a total amount due and no breakdown of the charges. This breakdown IS available and you should make a point of asking for a copy.

Though we at Notch Consulting establish our tax preparation fees for the entire year a couple of weeks before the tax season starts, we do check in with the storefronts to see what some of the going rates might be. And occasionally, a new client will bring in an invoice from a previous year. That’s where the information below comes from; a new client brought in their previous year’s return (tax year 2007) – this is the breakdown of what she was charged in early April of 2008 for her tax preparation at a major storefront:

1040 – Federal Base Form -- $106.00
“Interest and Dividends Interview and Determination” -- $14.50
Schedule A – Itemized Deductions -- $52.00
Schedule C-EZ – Profit or Loss from Business -- $43.00
Schedule D – Capital Gains -- $22.00
Schedule SE – Self Employment Tax (two charges totaling) -- $46.00
“Child Tax Credit Worksheet Preparation” -- $30.25
“Taxable Recovery of Previous Deduction” (e.g., adding back in the previous year’s state refund) -- $31.75
4797 – Sales of Business Property -- $43.50
8812 – Computation of additional child tax credit -- $20,50
8880 – Credit for Qualified Retirement Contribution -- $23.25
“Head of Household Interview/Determination of filing status -- $7.00
“Dependency Determination” -- $2.75
NYS IT-201 (Base Fee) -- $49.00
NY – Itemized Deductions -- $21.25
NY – Itemized Deductions Subtraction Adjustment -- $8.00
NY IT 213 – Empire State Child Tax Credit -- $10.00

TOTAL Bill for Tax Preparation -- $529.00

I’m not sure what’s the most ridiculous charge here; I’m torn between the “Itemized Deductions Subtraction Adjustment”, the “Determination of filing status”, and “Taxable Recovery of Previous Deduction”. Anyway you slice it, $500+ for a single year’s tax preparation is a lot of money.

(Note: Notch Consulting’s 2010 Fee Schedule will be available and published here sometime in December 2009.)

New I-Bond Rates

I have to admit to being surprised when I downloaded the new I Bond rates this evening; I had to go to the government website to confirm them:

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 3.36% earnings rate for I bonds bought from November 2009 through April 2010 will apply for their first six months after issue. The earnings rate combines a 0.30% fixed rate of return with the 3.06% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U increased from 212.709 to 215.969 from March 2009 through September 2009, a six-month increase of 1.53%.

More than the bond rate...the CPI increase is a bit troublesome. Though the Federal Reserve recently affirmed their commitment to keeping the prime rate down, such a six-month increase in the CPI could be considered a warning shot. And, if the prime rate increases, credit card rates are going to absolutely soar... Forgive my caution.

Full disclosure: In my opinion, US Savings Bonds are a healthy part of a diversified investment strategy.

Winter 2009/2010 "Tax Tips" Now Available

If you're on the Notch Consulting mailing list, you should shortly be receiving the Winter 2009/2010 Issue of Tax Tips. Topics in this issue include:

• Electric Vehicle Credits
• Making Work Pay Credit and Pensions
• Earned Income Credit
• Qualifying Child
• Capital Gaines Rates
• Section 1202 Gain Exclusion
• Incentive Stock Options
• Roth IRAs...
• ...And More...

If you haven't received your copy by the November 1 or if you'd like additional copies to share (there are a few extras), contact Notch Consulting via e-mail (notchconsulting at verizon dot net).

Energy Costs: The Shower

Thirty years ago - yup, three decades ago - a mentor taught me a valuable lesson. It's going to sound small, but she taught me to shorten my shower time. Back then, I enjoyed 10+ minute showers and she cut me down to five minutes on shear will, determination, and shame.

There have been plenty of advantages to this lesson: time savings, energy savings, money savings. So I'm amazed when I listen to my neighbor - a MAN, by the way - who takes 15 minute showers every day - sometimes twice a day!

Boring, But Required

Starting next month (November 1), some tax preparers may be required to comply with the Fair and Accurate Credit Transations (FACTA) Act of 2003. Since Notch Consulting bills their clients on a net 3o basis, it could be interpreted that we may be considered a “creditor” with “covered accounts” and thus be subject to the “Red Flag Rules.”

So we have adopted and published a policy and procedure to develop a "customized program for the Company that will identify, detect, and respond to business practices or specific activities referred to as 'Red Flags' that could result in identity theft."

If you're really interested in said policy, there's a link to it on the sidebar on the right of this page. (Note that I have deleted the contact phone number for publication on the web.)

Health Care Isn’t Just About Insurance: Your Health Emergency Plan

The pain started last Saturday.

(The point of this story is that the current health care debate isn’t just about the availability of health care insurance. It’s also about personal responsibility, smart financial planning, and a Health Emergency Plan.)

By Wednesday, the pain in my jaw, ear, and sinuses was so intense that I could not sleep. I had a very deep, intense infection in a molar that was not responding to antibiotics. The tooth needed to be extracted by an oral surgeon.

Now, I have health insurance, but the dental rider covers exactly one cleaning and exam per year, period. No fillings, root canals, posts, caps, crowns, bridges, dentures, etc. As I sat in the exam room at the oral surgeon’s office, sipping water to ease the pain, I was told that I had to pay up-front for the needed extraction – a $500+ bill. And I had already lost one day of work and would likely loose more for my recovery.

So here’s the question: what would you do in a similar situation?

My solution? Thanks to some advanced planning over two years ago, I have an interest-free line of credit that can be used at several medical providers (in particular, things like dentists, plastic surgeons, etc.). I was able to charge the bill to that account and will be able to pay it off without interest over a period of time. In addition, I have some time ‘in the bank’ so I can still get paid, even though I had to take three unplanned days off from work.

What’s in your ‘Health Emergency Plan’?

Retirement Savings Limits for 2010

This week, the major news outlets made a big deal of the fact that, for the first time since cost-of-living increases were instituted, Social Security recipients will not be getting a raise in their benefits for 2010. This is a result of the fact that the Consumer Price Index (CPI) actually dropped into the negative numbers - a direct result of falling gas prices over the last few months.

But there are other consequences of the CPI drop. For 2010, the Social Security wage base will remain $106,800, the first time the index hasn’t budged since 1971. The tax rates will not change, either: 6.2% for FICA and 1.45% for Medicare. Self-employed taxpayers will pay 15.3% on the first $106,800 of their net earnings and 2.9% on any amounts above that.

A key cap on retirement plans won’t fall for 2010, despite inflation’s decline. The maximum 401(k) payin will remain $16,500 next year. The formula called for a $500 drop, but IRS decided to keep the ceiling where it is so employers don’t have to reprogram their systems and send out revised payin notices to workers. Individuals born before 1961 can put in as much as $22,000. These payin limits apply to 403(b) and 457 plans, too. And the ceiling on SIMPLEs stays at $11,500.

For more information on these limits, see the IRS announcement.