How to Justify/Understand REP Fees

[msindc1]

Folks:

I am an attorney who prepares a small number of returns for clients, for trusts that I administer, for gift taxes, and so on.  I spend a great deal of money on the program plus REP fees each year.  My fees are reasonable--neither much higher nor much lower than other tax preparers charge.  But REP fees along generally consume between 15 and 30% of the total fee that I charge.

I imagine that the metrics work for folks who do a ton of returns, but I'm just wondering how folks think about these fees in the context of the smaller preparer.  When REP fees of $90 or $150 for a single client exceed the cost of buying an off-the-shelf software program, I am having trouble wrapping my mind around why it costs what it does and whether I am doing something wrong!

M.

[George4Tacks]

Charge and hourly rate and add an "administrative" or "software" fee to cover the REP Fee. 

If you go to court, do you charge for filing fees?

If the fees are more than "off the shelf" software, why don't you switch? [I think I know the answer, but I had to ask.]

[msindc1]

George:

My question wasn't meant just to be whining.  I am genuinely curious about how people think about the fees.  For example, what answer would YOU give to why you don't use off the shelf software?

As for going to court, not all courts charge filing fees but when a court charges a $40 fee to file a motion that would have cost the client $500 or $5,000 to draft, the "drag" that the filing fee imposes is modest.

Micah

[George4Tacks]

Over my many years buying things I have learned that a really good tool can last many lifetimes and a really poor tool may only be good for one use. Lacerte is a tool that does the job I want done with minimal effort (most of the time) and I believe it is worth the extra cost to keep this very sharp tool. If you can find an "off the shelf" bit of tax software that makes you happy and does the job with minimal effort, then use it. Each time I try a new software, I long for the one that makes me really comfortable doing my job, i.e. Lacerte.

I have used a very early CCH software that was an abominable disaster. I currently use or play with ProConnect Tax, ProSeries and ProSystems FX, and Tax Act and yet I am still here with Lacerte. (Maybe I did drink the Kool-Aid!)

[pamdory]

I understand the quandary about the cost of Lacerte.  I've had a couple of colleagues switch from Ultra Tax to Drake due to the cost differences.  But they still keep a basic version of Ultra Tax to double check what they get out of Drake or for more complicated returns.  That's an extra layer of effort I don't have the time or patience for.   At this point in history there's enough anxiety built into a tax practice without introducing even a minimal lack of confidence in one of the most important tools we use.  

I actually converted from CCH ProSystem fx to Lacerte in 2003 because it was so much more affordable and more user friendly.  I told my CCH sales rep I changed because of the cost and he said "You should have told me, I could have given you a better price!".  That never sets well with me.

Although I get unlimited processing for 1040 & my home state Individual, I use the REP fees for all modules to determine my base fee for each tax return type.  I don't consider the software an incidental component, more like a staff member.

[msindc1]

You might've drunk the Kool-Aid--but that doesn't mean you're wrong.

As a woodworker, I know the truth of what you say about tools.  But my tools don't usually cost quite this much!

Thanks.

M.

[msindc1]

Pam:

Can you explain more about how you use the REP fee for the calculation of your fees?

M.

[pamdory]

First, my engagements may be different than yours as tax preparation is my primary service.  Your original post indicates that preparing fiduciary returns is an auxiliary service you provide along with your estate administration practice, correct?  I imagine most of your billing is based on billable hours?

I bill tax preparation by the form as it is an easier method for my clients to understand in relation to the value of my service.  It also makes it easier for me to estimate a fee for a prospective client.  And to be honest - I absolutely hate dealing with time keeping.

I determine my base fee to include the actual costs of software, supplies, labor plus an overhead cost componenet (encompassing occupancy, continuing ed, technology, data security, etc) and then a profit component - in my simple mind this means how much do I expect to receive in exchange for the portion of my life I'm giving up to provide this tax return.  That's how I've determined my "Base Fee" just to open a file and prepare the most basic version of that type of return.  Then I assign a fee for the various schedules required to be filed with that form which reflect time at my hourly billing rate.  The client is given the invoice with the base fee assigned to the primary form (1040, 1041, 1065, 1120, etc) and charges for supporting forms detailed below. 

Most years I adjust the base fee to accommodate the increases in my major costs - labor, software overhead.  The whole thing needs to be reviewed some years to make sure I'm still keeping all of my  bases covered.  This is one of those years.

[Thetaxlady123]

I totally agree that the REP fees are ridiculous.  How do you justify this fee, when a college student, who works a part time job in the state where they go to school, has to file a return that is not in your package?  I have been doing taxes for 45 years, and now the children of my clients have begun to work.  They don't understand a $65 fee for a return with 1 w-2 for a small refund.  I have asked and suggested that a package be offered at a discounted rate, of out of state return fees.  For the pas 5 years I have been using Drake to do my out of state returns and 1041s.  Agreed that Lacerte is a better program, and I wouldn't mind giving them the same money I pay for Drake to use one program.  I don't know how Lacerte can substantiate such a high cost for a state return, when the program is already written.

[Strongsilence-CPA]

2 cents:

Expensive fees that I pay to add value and produce a better product for my clients.  Lacerte is a partner for me. Like a partner they fail, they could do better many times and they help often.

I choose the option with 200 tax returns even though I do about 150 returns.

I dislike Intuit's ethics.

I dislike their failure to understand their California clients and I'd Intuit to spin off their California module into a unit or different product that is better for us.

CCH ProSystem is a great product but more expensive.

I don't itemize the software as it would undermine my value proposition.  I don't charge by the hour.

[George4Tacks]

I don't bill for a REP fee, but I do bill for additional states that are filed. I build the REP fee, along with the estimated time it takes me to do a multi-state return into the fee for that extra state. 

Not a justification, but have you looked at how much it costs for a do it yourself TurboTax return? I think many of us are greatly underpricing ourselves. 

[msindc1]

Of course, the problem is broader than the multi-state and "student" returns.  The fees for doing a Fed + 1 State return are very high.  I could purchase a new copy of Turbotax instead of paying those REP fees.  While I get that Turbotax has scale working in its favor, the high cost of Lacerte is highly problematic.

That said, what you mention is a huge source of my unhappiness with the fees.  When I have a client who has K1s from all over the country or kids in college who are working, the state fees are disproportionate.  I really wish that they would at least charge a lower state fee for additional states.

[Strongsilence-CPA]

Pass on Lacerte's fee to your clients.  It's what Intuit does to its customers.

[Accountant-Man]

I use Pro Series, but the point still stands. I pay for unlimited, so without counting Organizers, my costs work out to $11.62 per return.

Once you get past a certain number of returns, unlimited is worthwhile. But I prepare over 650 total returns.

[Accountant-Man]

You 're not allowed to use Turbo Tax and sell return prep.