2021 Fee Increases

By Jason Watson, CPA

Posted Sunday, May 16, 2021

No one likes price increases, but they are a fact of life. WCG takes fee increases very seriously, and only after a lot of reflection and analysis. So many crusty old CPA firms simply add $25 every year to the tax preparation fee… or 5%… or some other arbitrary number. While that seems to work for some, it does not sit well with us. Arbitrary numbers to an accounting firm??!!

And! We commonly hold fees steady for two years and sometimes three years because we understand the perception of annual increase as it relates to being arbitrary. In other words, we believe a fee increase is only warranted because of changes in economic conditions (or of course changes in your tax and accounting world) which move at glacial speeds.

Well, the time has come and WCG is increasing its tax preparation fees for 2021 tax returns (due in 2022) and business advisory fees for 2022.

What we are about to demonstrate probably doesn’t make anyone feel better. And that’s OK. But we hope to provide a foundation for our analysis.

Housing
The median sale price of a home in Denver was $215,000 in 2009. In 2020, that number is $450,000. This represents a compounded annual increase of 6.3% each year. Sure, lower interest rates have increased buying power and therefore prices, but going from 4.0% to 3.0% mortgage rates can’t push needles that much.

Consumer Price Index
Early 1980’s is used as a baseline at times for comparison when reviewing consumer price index (CPI) figures as generated by the Bureau of Labor Statics. In 2010, the U.S. as a whole had an index of 218 where Colorado was 212… basically, Colorado was cheaper to live in as compared to the U.S. average. In 2019, these numbers were 256 and 267 respectively which tells us that Colorado is now more expensive to live in versus the U.S. as an average. Over 300 sunny days a year and no bugs seems to appeal to a lot of people.

Tax Accountant Salaries
According to Robert Half, an employment agency for the accounting and finance industries, a senior tax accountant earned $56,250 to $ 74,500 in 2010. Today that range is $68,820 to $128,205. What is interesting is the ceiling is increasing at a much faster rate than the floor. The floor has seen an increase of 22% which is standard inflation (see below), but the ceiling has increased 72%. We are not sure what to make of this, but our Senior Tax Accountants earn between $80,000 to $100,000 as published on our careers page.

Inflation
The cumulative U.S. inflation from 2010 to 2021 is 22.5% which suggests that a $500 tax return today would have been $408 in 2010.

Ok… you’ve had enough of this. The challenges that WCG faces, and most tax and accounting firms, is hiring qualified talent and being able to pay wages that are commensurate to skill with an underlying cost of living tone. Our industry is probably not alone. Let’s not get started on the whole “nobody wants to work” complaint or the “minimalist” generation.

Do you want another fun fact?

WCG’s wages, excluding partner compensation, is about 40% of revenue. If we add in health benefits and our decent 401k match, our wage budget starts to hit closer to 42%. Most professional services such as attorneys, accountants, architects and perhaps some engineers try to earn revenue that is 3 x wages. Said in another way, wages should be 33% of direct billings. WCG has seen this percentage increase over the years. Salary budgets for qualified tax accountants, as a percentage of revenue, have accelerated recently primarily due to cost of living (including housing).

We are not trying to complain… just highlight some realities that we face. Ok, perhaps a little bit of complaining.

The speed and volume which data comes to us is blazing. Even as recent as 20 years ago it was tough to know if you are paying too much for something… is the product or service that you are receiving worth the price being paid? Consider this- large durable goods, such as automobiles, could not enjoy a geographical price adjustment. The manufacturer often published prices in sales literature, and it didn’t matter if the automobile was sold to someone in Los Angeles or someone in Toledo, Ohio (humor us and assume that Toledo has a much lower overall cost of living than the City of Angels). As such, a person in Los Angeles might have a purchasing power advantage because their wage base might be higher than other locations.

So what has the internet done to the practice of tax and accounting. Two things-

1. It has presented a landscape for a firm like WCG to pioneer and improve the online tax accountant, and
2. It has created the automobile phenomenon above where our fees to someone in Los Angeles seem reasonable and perhaps highway robbery to someone in another geographical area. Interesting enough, our primary client base is in Colorado, California, Texas and the eastern seaboard. CA, NY, TX and FL round out the top four states in terms of economic and contributors to the nation’s GDP… so… do our fees seem reasonable to these areas based on local economic conditions, or is simply a population equation? We digress…

What we are perhaps clumsily trying to say is that our little boutique firm tries to find a fee range that makes sense to most people. Another sidebar, a huge part of our success has been found in the publishing of our fees on our website. This too has done two things-

1. Gives the prospective client forward-looking cost structure to the services they need, and
2. Takes fees off the table. Far too often the discussion of fees comes up after the deliverable (tax return). That is insane. Imagine buying a car without a sticker price? At time of delivery, the associated fee should be a distant memory.

Back to the subject… It is often said that competition validates your product, so naturally looking to the competition is a great litmus test of where you fit in. In a 2018-2019, a survey conducted by the National Society of Accountants found the following fees for tax preparation-

• Form 1040 + Schedule C (small biz), $630
• Form 1040 + Schedule E (rental), $539
• Form 1040 + Both, $766

WCG’s fee range for individual tax returns (Form 1040) is $600 to $800. Frankly, we believe surveyed accountants are a bit puffy on these surveys and don’t necessarily count for discounts or write-downs… oh well. The survey remains telling.

What is also fun is when we see a receipt or invoice from the previous accountant… and what is even more fun is when the previous accountant is H&R Block. A store manager for Sam’s Club told us a long time ago; a third of our stuff is cheap, a third is the same price, and a third is higher… while in aggregate we have the same profit margins as anyone. But the perception is that everything at Sam’s Club is less expensive than the competition. Not true. Southwest Airlines has similar magic. $39 one way to Las Vegas… $329 to get home… but all you see is $39.

Back to H&R Block… they certainly have lower fees for the basic individual tax return (Form 1040). Sure, but we’ve seen some crazy high fees for a small business owner who also happens to have rentals coming out of H&R Block. They only advertise the basic tax return fee, and just like Sam’s Club or Southwest, the public assumes everything falls in line. “If a basic tax return is only $39, then it can’t be much more for a rental.” Test that logic… you’ll only do it once.

By the way, we are not bagging on H&R Block. We are glad they exist since they fill a need in the accounting industry, and do it well.

What is a bit humorous is when a client pushes back gently on a fee increase but we can see that they have received pay increases each year. Sure, people change jobs and typically get a sizeable bump in pay. But what really gives us a giggle is when we see rental income increase year after year, and we say to ourselves, “oh… hmmm… interesting… you’re increasing your fee to align with current economic conditions.” We probably don’t say that aloud since it sounds completely nerdy, but you get the idea.

When a company increases prices or fees, they better deliver. They should have always been delivering a quality product or service, but now the scrutiny is increased… at least in the short-term. WCG had a rough 2020 tax return season. Some of it was like a natural disaster, and some of it was completely within our control. Each year we perform a postmortem analysis on our tax season, and this year we sent out an email to all clients outlining some of the issues with our client experience. You can read that here.

As any thoughtful business does, WCG is continuously improving our client experience, and a part of that process is communicating to you our mistakes and challenges.

Jason Watson, CPA is a Founding Partner of WCG Inc., a business consultation and tax preparation CPA firm located in Colorado Springs and Denver, and is the author of Taxpayer’s Comprehensive Guide on LLC’s and S Corps which is available online and from average retailers.