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I think people who use a tax prep service do so because (a) they perceive that doing it themselves would be too complex, (b) they fear the IRS, and using a professional tax preparer creates a perceived "buffer," and (c) they hope they'll end up paying less in taxes. I don't think your average client is shopping for lowest price as much as other things (e.g., convenience, personal service, etc.) for a competitive price.

Like most enterprises, tax prep is a business where keeping an existing customer is a lot cheaper than finding a new one, and where word-of-mouth/customer referrals are valuable. In a rural area, these factors probably have an even greater impact than they would in an urban area with lots of migration. Also, a tax prep service doesn't provide a lot opportunity to add value for the customer. It is what it is.

Considering all that, I'd be inclined to keep prices lower than your competitors, but not as much lower as it sounds like they are now. Your most effective and profitable strategy would seem to be "match or beat" pricing on all of your services, the same guarantee/assurance of quality and accuracy as your big name competitors, a more personal and friendly "local business" way of dealing with customers, plus any value-added bonuses you can offer (such as free e-filing) -- even if those "bonuses" are things everyone does for free anyway (they create a perception of greater value).

In order to raise your prices without hitting your existing clients with a huge increase, you could offer them a "loyalty discount" of some kind -- which alerts them to the fact that your fees have gone up, yet keeps them from seeing such a dramatic jump compared to last year.

Hope that helps. Best wishes.