What Does a $600 Tax Return Actually Get You?

At best, you get an accurate return. When you pay a few hundred dollars for tax preparation, you are paying someone to take your documents and report what already happened. Strategy, advice and proactive solutions are not part of that price.

I'm Marcus Mire, CPA, founder of MireGroup CPAs in Lafayette. This fall I sat down with a client whose $600 return didn't even get the accurate part right.

What happened with the $600 return?

We're expanding our work with a client, so we pulled his prior return. He paid $600 for it.

He started a new business that year and bought a lot of equipment. About $80,000 worth.

None of it was on the return. No fixed assets. No depreciation. The equipment just wasn't there.

Depending on his situation, that equipment would have saved him somewhere around $15,000 to $20,000 in tax. Maybe a little less. Either way, that's real money.

I'm not telling this to beat up on another preparer. I know how that model works because we used to run it. A lot of prep shops move through returns fast. Volume is the business model, and things get missed.

What should you expect from tax preparation?

An accurate return and decent service. That is the job.

Tax prep is a compliance engagement. You hand over a stack of documents after the year ends, and someone reports what happened. Lowering your taxes, planning strategically and making you better off financially sit outside that scope.

If prep is what you're paying for, that's what you should expect. The frustration starts when people expect planning at a prep price.

What does tax planning add?

The same client had a lot more going on than the equipment.

• He is doing really well at his job.
• He has stock he wants to sell, and he doesn't know if he'd have enough to pay the taxes on it.
• He has money in the bank he could spend on improvements to his house that would affect his business.

None of those questions get answered on a tax return. They get answered with a projection.

So we told him that's a different service. We take his current pay stub and his current business activity and project his taxes. Then we can tell him what happens if he sells the stock, how much of the cash he needs to hold for taxes, if any, and whether he'll be good in April.

That's what planning buys you. Peace of mind and clarity before you make the decision.

Why don't more CPAs include planning with tax prep?

Because planning is where all the value is, and you should pay for it.

Lots of people in our industry gave planning away for too long, or never did it at all. It's also what every client I talk to wants. So more progressive firms are separating it out and charging for it.

At MireGroup, we don't do a lot of one-off tax prep. When we do, we only combine it with tax planning and consulting. Without it, you get a worse outcome. Maybe that's fine for what you paid. It doesn't feel good to us, because we want people to sleep good at night and have clarity around their taxes. That is the whole approach.

What should you do if all you have is tax prep?

Ask your provider if you can pay for some advisory. Ask if you can pay for tax planning or strategy, and see what they can unlock for you.

That matters most if any of these happened to you this year:

• You had a negative outcome or an unexpected tax bill
• You have income you don't understand
• You started a new business

If they don't offer it, you can't expect planning and strategic advice out of a prep engagement. Chances are they're working on building it out, though.

If you want to know what to ask for, I break down the difference between a tax preparer and a tax advisor and how often you should be meeting with your CPA.

Frequently asked questions

Can a tax preparer miss deductions?

Yes. Preparers working on volume move fast, and things slip. In the story above, about $80,000 of new equipment never made it onto the return, so none of it was depreciated. If you bought major equipment, started a business or had a big change, ask how it was reported.

Does a cheap tax return include tax planning?

Usually not. A return in the $500 to $600 range is priced for preparing the return accurately. Strategy, advice and projections are a separate service, and more firms are charging for them separately.

Can I pay for some advisory without switching CPAs?

Ask your provider. That's the first thing I'd tell anyone who only has tax prep. Many firms are building advisory out right now. If yours doesn't offer it, at least you know what you're getting.

What does a tax projection tell you?

It estimates what you'll owe using your current pay stub and current business activity. Then you can test decisions against it before you make them, like selling stock or spending cash in the bank. We walk through the numbers in regular advisory meetings, so April holds no surprises.

If you've got a return you're not sure about, or a decision you don't know how to make yet, we'd love to help.