Accounting FeesDecember 28, 2016
All accountants charge by time spent on a task or project. The longer it takes the higher the cost will be. Notwithstanding these facts, it is possible to provide a fixed fee quote; however, this quote is really an estimation of the time required multiplied by the anticipated charge out rate.
Economic theory about accounting fees – Most people have an effective rate for their work. Whether they are paid hourly or salary, it can be converted to an hourly figure. What many people don’t know is their free time also has a value which can be quoted in dollars per hour. Studies have shown that a person’s free time has a value which approximates their average hourly wages. Accordingly, accounting fees will mirror those charges.
Economic theory of accounting fees – Example A: Low income earner
Assume that each person could prepare their own tax return, though their preparation time will be significantly slower than a trained accountant (say 5x slower).
Person X earns $10/hour and has one T4 slip. They could prepare their own tax return in 30 minutes. Therefore, the tax return would be worth $5 to them (plus $39 for the purchase of the software).
Total cost to do it yourself $44. On the other hand, a trained accountant could prepare the same return in 6 minutes at a cost of $300/hour plus fixed fees of $50 for a total of $80. Therefore, the person who earns $10/hour should prepare the tax return themselves or look for someone who will charge $44 or less.
Economic theory of accounting fees – Example B: high income earner
Same assumptions as example A except, Person Y earns $200/hour and has dual residency (Canada & US), FBAR foreign bank account reporting, T1135 reporting, two Canadian rental properties and one US rental property, significant investment income and interests in private corporations and LLCs. Therefore, Person Y could do their own tax return in 30 hours or a value of (30 hours x $200/hour) plus accounting software ($39) = $6,039. On the other hand a trained accountant could prepare the same return in 6 hours at $300/hour plus a fixed fee of $50 for a total of $1,850. Therefore, the high income earner is much better off having a trained accountant prepare their return and creates $4,189 of value by having a trained accountant assist them.
Generally speaking, the better presented your records are, the lower your fees will be.