Professional Fees

Professional fees are charges for the services delivered by professionals. They are typically specially trained individuals in specific fields of study, such as doctors, engineers, lawyers, accountants and architects. These charges are a source of income received by the professionals.

It is seen as a charge on the value they provide using their time to find solutions that the client requires. They differ from industry to industry and mostly depend on the service provided. Other criteria that decide the amount of compensation are the level of expertise required for the service, the reputation of the professional and their geographical location.

Professional fees are charges that are paid as compensation for availing of professional services. They are fees paid for the provision of special services such as doctors, lawyers, teachers, accountants etc. Professionals decide the rates and are either fully or partly paid in advance or after the work is done. Some professionals also charge based on hourly rates or as a one-time settlement for the entire service.

The charges vary from one professional to another. It often depends on the field, expertise, the time their services are availed for and the level of expertise the problem requires. If the professional is hired from another location, then the travel, food and accommodation expenses may also be levied along with the fee or as part of the fee. It is commonly seen that the fee raises with higher experienced professionals. Corporate companies and individuals both hire them and for both, it is an expense.

The fee is often non-negotiable. However, professionals provide standardized services for the majority of times and similar rates will be charged across markets. Individuals can compare rates and reviews to choose the affordable fees. Under the IRC or the Internal Revenue Code, the professional fees deduction is not specifically mentioned. They are, however, deductible if they qualify as ordinary and necessary expenses. Similarly, for businesses any fee paid to professionals can be deducted under expenses.

Given below are some of the types of professional fees:

1. Hourly rates: Professionals charge their clients based on the hours they spend on a specific issue. It could also be a project or a task. They may be costly.
2. Project-based fee: Professionals may charge on the basis of completion of a project. It means that the payment is made on completion irrespective of the hours put in.
3. Retainer fee: Customers are given an option of paying a specific amount of fee each month to avail of their services for the long term. In such cases, customers get the option of immediate answering of the queries whenever required. 
4. Contingency fee: The structure is often used by lawyers where there is no fee paid, but the charge is on the percentage of wins. They would claim a certain percentage of the winning claim as a fee. 
5. Commission fee: Professionals who are financial advisors often employ this. They work on commission either from the sales made or through transaction costs. 
6. Flat fee: Professionals may charge a fixed rate. The rates are irrespective of the level of expertise, effort, or time required. They are often employed in services such as preparation of tax returns. 

Let us look at some examples to understand the concepts better.

Example #1 - A Hypothetical Example

Imagine Dan is a qualified, certified public accountant who offers consultations and services in certain areas. They include financial accounting, management and cost accounting, internal and external auditing, tax preparation and planning etc. Dan has over ten years of experience and is a known name in the industry. He is an avid investor and trader, and with the experience and knowledge he possesses, time is money for him. Hence, he charges $1000 for an hour as accounting professional fees. Those who require his assistance pay him the requested rate. Even if the services last for 10 minutes, since it is within an hour, they are charged $1000. 

Example #2- Real Life Example of Legal & Professional Fees

Quinn Emanuel Urquhart & Sullivan is a law firm representing the health insurers in the Obama care issue. They were awarded legal & professional fees of  5% of each one of the funds reclaimed in allegations. They had argued that the U.S.U.S. had not fulfilled its obligations under the risk corridor program of the U.S. Affordable Care Act. The article here talks about the time when the U.S. court stated that the fees requested by the firm were deemed as high. However, the professionals had argued that there were high risks involved and the hours worked on the case were extensive.