Minimum Fee for Tax Returns: How to Price Without Losing Clients

Minimum fees are the single most effective filter for unprofitable tax work. Set them too low, and you spend tax season drowning in $200 returns that consume 3-4 hours each. Set them appropriately, and problem clients self-select out while profitable ones stay.

The math is brutal. A $200 return that takes 3 hours of total time (prep, review, client communication, document chasing, e-filing, notice handling) produces an effective rate of $67 per hour. That same time spent on a properly priced return at $600 generates $200 per hour.

Most tax practitioners undercharge because they fear losing clients. The data tells a different story. When firms raised prices in the past year, two-thirds either lost no clients or lost some but maintained stable profitability.¹ The clients you lose are usually the ones you should have filtered out years ago.

Minimum fees are one piece of a broader pricing strategy. This guide focuses specifically on setting and communicating price floors that filter out unprofitable work.

Table of Contents

• Why Most Tax Practices Need Higher Minimums
• How to Calculate Your True Minimum Fee
• Current Market Rates for Tax Preparation
• Setting Minimums by Return Complexity
• Communicating Price Increases Without Losing Good Clients
• When Clients Push Back on Your Minimum Fee
• The Hidden Costs That Justify Higher Minimums
• Technology That Makes Lower Minimums Profitable
• Minimum Fees and the Orphan Client Problem
• Building Your Minimum Fee Policy

Why Most Tax Practices Need Higher Minimums

The National Society of Accountants surveys members periodically on fee structures. The most common approach (used by 44% of practitioners) is a minimum charge plus additional fees based on complexity. The average minimum fee reported was $172.²

That number is outdated and too low for 2025. Inflation alone has pushed costs up 19% since 2020.³ Add in rising software costs, increased regulatory burden, and the CPA shortage driving up labor costs, and that $172 minimum should be at least $250-300 just to maintain the same margins.

Many firms are going much higher. Published fee schedules from CPA practices show minimums ranging from $350 for basic individual returns up to $500-600 for anything involving schedules beyond the standard deduction.⁴

The firms charging $800-1,000 minimums for individual returns are not losing clients to TurboTax. They are attracting clients who value professional service and pay without complaint. Price signals quality.

How to Calculate Your True Minimum Fee

Your minimum fee needs to cover three things: direct time costs, overhead allocation, and a reasonable profit margin.

Direct time costs include everything that goes into a return: initial client intake, document collection, data entry, review, e-filing, and post-filing support. A “simple” return often takes 2-3 hours when you account for all touchpoints.

Overhead allocation covers your rent, software subscriptions, insurance, continuing education, and administrative staff. For a solo practitioner, overhead typically runs 30-50% of revenue. A $300 return with 40% overhead leaves you $180 for your time and profit.

Profit margin is what makes the practice sustainable and fundable. If you are earning less than $150 per hour after overhead on tax preparation work, you are undercharging.

Here is a simple formula:

Minimum Fee = (Target Hourly Rate × Expected Hours) × Overhead Multiplier

Example: You want $175/hour, expect the simplest returns to take 2 hours total, and your overhead is 40%.

$175 × 2 = $350 in time value $350 × 1.4 = $490 minimum fee

If $490 feels high, your target hourly rate or overhead multiplier needs adjustment. Or you need to find ways to complete returns faster.

Current Market Rates for Tax Preparation

Understanding market rates helps you position your minimum appropriately. You do not need to be the cheapest option. You need to be competitive within your target client segment.

According to 2025 industry data:⁵

State returns typically add $50-150 depending on complexity.

The spread between low and high end reflects different markets, different service levels, and different client expectations. A $200 preparer handling 1,400 returns per season operates very differently than a $700 preparer handling 200 returns.⁶

Both models can work. The problem is trying to serve both markets without systems optimized for either.

Setting Minimums by Return Complexity

A single minimum fee rarely makes sense. Most practices use tiered minimums based on what the return includes.

Tier 1: W-2 only, standard deduction Minimum: $350-450

These returns are fast if the client is organized. The risk is clients who bring incomplete documents, cannot remember stimulus payments received, or need hand-holding through basic questions. Your minimum needs to account for the average client, not the best case.

Tier 2: Adds Schedule A, B, or D Minimum: $500-700

Itemized deductions mean charitable contribution substantiation, mortgage interest statements, and state tax calculations. Investment income adds 1099-DIV and 1099-B forms with cost basis research.

Tier 3: Adds Schedule C or E Minimum: $750-1,000

Self-employment or rental income transforms a return. Bookkeeping quality varies wildly. Some clients arrive with clean P&Ls. Others bring shoeboxes of receipts. Your minimum must assume mediocre records unless you charge separately for bookkeeping cleanup.

Tier 4: Business entities (1120, 1120S, 1065) Minimum: $1,500-2,500

Entity returns require maintaining entity-level records, understanding pass-through implications, and coordinating with personal returns. The compliance burden justifies premium pricing.

Publish these tiers clearly. Clients who see a minimum of $750 for Schedule C returns self-select. Those who value professional service engage. Those who want $200 pricing find it elsewhere.

Communicating Price Increases Without Losing Good Clients

Raising prices on existing clients requires direct communication. The worst approach is surprising them with a higher bill after the work is done.

Give 60-90 days notice before the increase takes effect.⁷ For tax practices, this means communicating in November or December for the upcoming filing season.

A price increase letter should be brief and matter-of-fact:

“Starting with the 2025 tax season, our minimum fee for individual returns will be $500 (previously $350). This adjustment reflects increased operating costs and our continued investment in technology and training to serve you better.

If you have questions about how this affects your return, please reach out.”

Skip the apology. Skip the lengthy justification. Your clients understand that prices go up. The ones who complain loudly were probably undercharged to begin with.

80% of accounting firms plan to raise prices in 2026, with most implementing 5-10% increases.⁸ You are not doing anything unusual.

The clients who leave over a reasonable price increase are often the ones with the highest administrative burden and lowest appreciation for your work. Letting them go creates capacity for better clients.

For complete letter templates, phone scripts, and guidance on handling objections, see our guide on how to raise tax preparation fees.

When Clients Push Back on Your Minimum Fee

Some clients will push back. Have a prepared response.

“Your prices went up a lot.”

“Yes, our costs have increased significantly, and we’ve invested in better technology and training. Our pricing reflects the current market for professional tax preparation.”

“I can do this cheaper myself with TurboTax.”

“That’s a reasonable option for many people. Our service makes sense for clients who want a professional review, audit support, and someone who knows their situation year over year. If DIY fits your needs better, I understand.”

Do not negotiate your minimum. Discounting trains clients to expect discounts. It also signals that your pricing was arbitrary to begin with.

If a long-time client genuinely cannot afford your new rates, you can offer alternatives. Perhaps they extend their return and you complete it during slower months at a reduced rate. Perhaps they prepare their own documents more thoroughly to reduce your time. Do not simply discount because someone complains.

The Hidden Costs That Justify Higher Minimums

Clients see the final return. They do not see everything else that goes into serving them.

Professional liability insurance costs $1,500-5,000+ annually depending on your coverage and claim history.

Continuing education requirements for CPAs, EAs, and other credentials run $500-2,000 per year in direct costs, plus the time spent completing courses.

Software subscriptions for tax prep software, document management, client portals, e-signature tools, and practice management add up to $3,000-10,000 annually for a small practice.

IRS notice resolution rarely gets billed separately, but every notice requires research, client communication, and often representation. The time cost averages 1-2 hours per notice.

Client communication between filing seasons, including quick questions, document requests from lenders, and transcript requests, consumes unbillable time.

When a client questions your $500 minimum for a “simple” return, they are comparing your service to software. They are not accounting for the professional standing behind that return with expertise, insurance, and year-round availability.

Technology That Makes Lower Minimums Profitable

Some practitioners maintain lower minimums by dramatically reducing the time each return consumes. The key is automation.

Client portals eliminate email threads and document chasing. Clients upload everything to one secure location. You see instantly what is missing.

Automated data extraction pulls information from W-2s, 1099s, and bank statements without manual entry. A return that took 45 minutes of data entry drops to 5 minutes of review.

Templated workflows standardize every step from engagement through filing. Nothing falls through cracks. Less time fixing mistakes.

Conto’s bank statement automation cuts data entry time by 40-60% on returns with Schedule C, E, or complex financial situations. The clients that typically blow up your time budget become predictable.

The math changes when a $500 return takes 90 minutes instead of 4 hours. Your effective rate jumps from $125/hour to $333/hour.

Technology does not let you charge less. It lets you profit more at the same prices, or serve more clients without adding staff.

Minimum Fees and the Orphan Client Problem

Minimum fees directly address the orphan 1040 client problem that frustrates many tax practices.

Orphan clients are individual filers who engage once per year with no ongoing relationship. They tend to be price-sensitive, provide incomplete documentation, and generate complaints about owing taxes.

A $500 minimum filters out the price shoppers. The orphan clients who remain at that price point are typically higher-net-worth individuals who value professional service.

Some practitioners set even higher minimums specifically to discourage standalone 1040 work. A $1,000 minimum effectively limits your individual practice to clients with complex situations or ongoing advisory relationships.

The alternative to raising minimums is automating the data entry that makes orphan returns unprofitable. If you can complete a straightforward 1040 in 30 minutes including all administrative time, a $350 minimum produces a $700/hour effective rate.

Building Your Minimum Fee Policy

A clear minimum fee policy protects your practice and sets client expectations. Include these elements:

Published minimums by return type. Post them on your website. Include them in engagement letters. Remove ambiguity.

Scope definitions. Specify what is included (one state return, e-filing, basic amended returns) and what costs extra (additional states, audit representation, prior year returns).

Payment terms. Require payment before filing, or at least before releasing the return to the client. Chasing receivables after tax season wastes time.

Rush fees. Returns brought in after April 1 or requiring filing before a specific deadline command premium pricing. 25-50% rush fees are common.

Document quality adjustments. If clients provide clean, organized records, the return completes faster. If they bring shoeboxes, you need compensation for the sorting. Some firms offer small discounts for organized clients. Others charge premiums for disorganized ones.

Annual review process. Block time each November to review your fee schedule against your actual time tracking from the prior season. Adjust any returns that consistently exceed their quoted prices.

Your minimum fee policy is not about maximizing revenue from each client. It is about ensuring every client is worth serving. Returns priced below your minimum create resentment, rushed work, and staff burnout.

Making the Transition

If your current minimums are significantly below market, phase the increase over 2-3 years. A jump from $200 to $600 in one season will cause more client loss than the same increase spread across three seasons.

Year 1: $200 → $350 Year 2: $350 → $475 Year 3: $475 → $600

Each increase eliminates the most price-sensitive clients while retaining those who value the relationship. By year 3, your client base consists of people who chose to stay despite rising prices. They are better clients.

During the transition, track which clients leave and which stay. Often, the departures are clients you would have fired anyway for bad documentation, slow payment, or excessive demands.

The goal is a practice where every client generates adequate return for the time invested. Minimum fees are the first line of defense.

Ready to make your minimum fees more profitable? Conto automates the data entry that eats into your margins on every return. See how it works with your actual client documents.

Footnotes