Guides
Placing clients into tax preparation services packages
Place each client in one of four tax preparation services packages with intake questions, edge-case rules and a floor price built from your own minutes.
What to take away
- Listen for what the client says, map it to the form the return needs, and let the form decide the tier.
- Ask four intake questions in the same order every time, from the top tier down, and stop at the first yes.
- Place a client in the highest tier any of its forms reaches, so one side business moves a simple return out of Tier 1.
- Every tier carries a written list of exclusions, and anything outside it bills at your stated hourly rate.
- Price each tier from your own preparer minutes, review minutes, loaded hourly rate and target margin, not from a competitor's menu.
- Sell the tier you can staff in the last three weeks of March, not the one you can staff in June.
Return positions belong to the IRS, the relevant state tax authority, or a licensed CPA or enrolled agent. Circular 230 discipline and contracts belong to the IRS Office of Professional Responsibility or a licensed attorney.
What clients say, and the tier it points to
A client rarely says "Schedule C". They say they do some work on the side, or that they bought a house. Listen for the phrase, translate it into the form the return will need, and the form gives you the tier. Four phrases cover the ladder.
| What the client says | Form it points to | Tier |
|---|---|---|
| "Just my job, nothing else" | One W-2, standard deduction, no schedules | 1. Simple W-2 |
| "We bought a house" or "we give to charity" | Schedule A with mortgage interest or charitable giving | 2. Itemized Individual |
| "I do some work on the side" | Schedule C, a mileage or expense summary, quarterly estimates | 3. Self-Employed Plus |
| "We own the company" or "I need my books done" | An entity return and bookkeeping | 4. Business + Books |
Retail software climbs the same ladder, which helps when a client asks what they would pay elsewhere. TurboTax Free Edition, Cash App Taxes, IRS Free File and FreeTaxUSA sit beside Tier 1. TurboTax Deluxe, H&R Block Deluxe and TaxAct Deluxe sit beside Tier 2.
TurboTax Self-Employed and TaxSlayer Self-Employed sit beside Tier 3. At the top, TurboTax Business, Lacerte, ProSeries, Drake Tax and UltraTax CS price the return, not the bookkeeping behind it, so the books are what your Tier 4 fee adds. For a fuller menu of what can sit inside each tier, see tax preparation services and packages.
Four intake questions, asked in the same order
Start at the top of the ladder and stop at the first yes. The same order for every new client means two staff members put the same client in the same tier, whoever answers the phone.
- Does the client need an entity return, or monthly or quarterly bookkeeping? Tier 4.
- Is there self-employment income that needs Schedule C, a mileage or expense summary, or quarterly estimates? Tier 3.
- Will the client itemize on Schedule A? Tier 2.
- Is it one W-2, the standard deduction and no schedules? Tier 1.
The IRS says to use Schedule A to figure your itemized deductions, which makes question three a plain yes or no. Question two works the same way, because Schedule C is the form a sole proprietor uses to report income or loss from a business.
Working from the top means a simple return with a side business never lands in Tier 1, because Tier 1 covers no schedules. A self-employed return belongs in Tier 3 even when the client thinks of it as a simple one.
Edge cases that move a client between tiers
Decide these cases before the season opens, so nobody improvises at the desk in March.
One W-2 and a side business. Use the highest tier any form reaches. The side business needs Schedule C, so the client sits in Tier 3, and the quarterly estimate schedule and expense summary belong in that scope.
An individual who wants bookkeeping. Tier 3 does not include ongoing bookkeeping. The client needs a business return with bookkeeping scope, or a separate engagement beside Tier 3.
A client who needs payroll. Payroll processing or filings fall outside Tier 4 unless you have scoped that work separately. Say so at the estimate stage, in writing.
A client whose situation changes after the quote. Re-place the client with the same four questions and re-quote before work continues. A new schedule is a new tier, not a favor.
What every tier excludes in writing
The exclusion list is what protects the price. Put it on the engagement letter, not in a conversation, and give every client the list for their own tier before work starts.
Tier 1 leaves out itemized deductions, self-employment and entity returns, amended returns, notice responses, audit representation, bookkeeping and payroll filings. Each higher tier drops from that list what it now covers. Tier 4 still leaves out amended returns, notice responses and audit representation.
What every tier must exclude
- Prior-year amendments
- IRS or state notices after filing
- Audit representation
- Bookkeeping cleanup beyond current year
- Entity formation or ownership changes
- Payroll filings
Anything outside the list bills at your stated hourly rate. Say the rate out loud at the estimate stage so nobody is surprised in April.
Setting the floor price for each tier
Do not copy a national benchmark. Benchmarks are averages of practices that are not yours, in a jurisdiction that is not yours, with a cost structure that is not yours.
Use M for preparer minutes, E for review minutes, R for fully loaded hourly rate, and T for target margin. Calculate the floor price as ((M + E) / 60 × R) / (1 − T), with T entered as a decimal.
Pricing formula from your numbers
- M = minutes of preparer time
- R = fully loaded hourly rate
- E = expected rework minutes
- T = target margin as decimal
- Floor price = (M + E) / 60 x R / (1 - T)
Price your Tier 2 above Tier 1 by the extra review time, not by the extra forms. If the floor is above what your market pays, the answer is not a lower price. It is a narrower tier, a shorter return, or a different client.
A worked example for Tier 2
A two-preparer shop measures Tier 2 at 95 minutes of preparer time and 20 minutes of review. Fully loaded rate is 85 dollars an hour. Target margin is 30 percent.
Worked example: Tier 2 price
- 95minutes preparer time
- 20minutes review time
- 85dollars hourly rate
- 232dollars floor price
(95 + 20) / 60 x 85 / 0.70 = 232 dollars.
Round to 245. If the local market tops out near 180, the tier is too broad. Cut the dependent credit review to Tier 3 and re-measure.
Retiring a tier that stops paying
Track exceptions and rework minutes per tier each month. A tier that runs over its measured minutes for two consecutive months is either mispriced or misdescribed. Fix the description first, because a vague tier invites extra work, then re-measure before touching the price.
Common questions
Why not just match the chain down the street?
Their cost structure is not yours. A franchise absorbs software, training and marketing at a scale a two-person practice cannot match, and it may be selling a loss leader to fill a storefront. Price from your own minutes and your own rate.
What happens to work outside a client's tier?
It bills at your stated hourly rate, which the client hears at the estimate stage and reads on the engagement letter. The exclusion list for their tier shows exactly where the line sits, so the conversation in April is short.
When should a tier be retired?
When it stops covering its own rework. Track exceptions and rework minutes per tier each month, and retire or redescribe the tier that keeps running over its measured minutes.
