Tax Preparation Services
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 19,500 tax preparation services in the US provide federal and state tax return preparation, filing, and related services to individuals and corporations. Other services provided include bookkeeping and compilations services and tax planning and consulting services. To mitigate the highly seasonal nature of tax return work, some firms also offer accounting, payroll, or insurance services.
Competition From Alternative Sources
Tax preparation service providers face competition from a variety of sources, including do-it-yourself (DIY) programs, accounting firms, law firms, independent CPAs, and government programs.
Seasonality
Demand for tax preparation services is highly seasonal because the majority of clients file returns between January and April.
Industry size & Structure
The average tax preparation services provider works out of a single location employs about 5 workers and generates about $482,000 annually.
- The tax preparation services industry consists of about 19,500 firms that employ about 98,000 workers and generate about $9.4 billion annually.
- The industry is concentrated at the top and fragmented at the bottom; the top 8 companies account for almost 40% of industry revenue. The top 50 companies account for less than 45% of industry revenue.
- Large companies include H&R Block, Jackson Hewitt Tax Service, and Liberty Tax Services (BP Commercial Funding Trust).
- The industry includes national chains, franchises, and independent operators.
- About 53% of taxpayers use third parties to prepare taxes and tax preparation software is used in nearly all returns, according to the IRS.
Industry Forecast
Tax Preparation Services Industry Growth
Recent Developments
Oct 4, 2024 - IRS Doubles Number of States in Direct File Program
- In October, the IRS said that beginning in 2025, the agency’s free direct filing program, Direct File, would reach taxpayers in 24 states - twice as many states as in 2024, according to Accounting Today. Starting next year, as many as 30 million taxpayers will be eligible for Direct File, and the program will be able to process more types of income, credits, and deductions. Key additions include Credit for Other Dependents, the Child and Dependent Care Credit, the Premium Tax Credit, the Retirement Savings Contributions Credit, and deductions for health care savings accounts. Direct File was a pilot program that debuted in 2024 in 12 states and served about 140,000 taxpayers.
- In a recent Gartner survey of 121 finance leaders, 58% of respondents said their finance organizations are using AI. In a similar survey in 2023, only 37% of those surveyed said their finance departments were leveraging AI. Two-thirds of finance leaders surveyed said they were more optimistic about the potential impact of AI than they were a year earlier. The leading use case for AI implementation in finance is intelligent process automation (44% of finance organizations), which uses the AI capabilities of existing automation tools, including robotic process automation. Other key use areas include anomaly and error detection in large datasets (39% of finance organizations) and analytics and financial forecasting (28% of finance organizations). While finance leaders have made progress in implementing AI, their top challenges are data quality and availability, and attracting enough AI talent.
- In September, PricewaterhouseCoopers (PwC) said it would lay off about 1,800 workers, the company’s first such move since 2009, according to The Wall Street Journal. PwC said it would also restructure its technology group amid a slow demand for some of its advisory services. The reductions will include associates and managing directors in the firm’s business services, and audit and tax segments, and about half the cuts will be for positions outside the US. PwC noted that, unlike its Big Four accounting firm peers, it has not laid off US-based workers over the past four years. The move by PwC comes as some professional services firms have seen demand for certain services soften amid high interest rates and a sluggish economy.
- In July, the IRS said it had collected $1 billion in its yearlong effort to target wealthy taxpayers who haven’t paid all they owe, according to The New York Times. The agency identified more than 1,600 taxpayers with incomes of more than $1 million who owed back taxes of more than $250,000. The IRS is continuing with a $60 billion overhaul of its operations to modernize, provide better customer service, and collect from affluent tax evaders. With enforcement staff additions enabled by the fresh funding, the IRS has been better able to identify and send letters to wealthy individuals who underpaid on their taxes. Under 2022’s Inflation Reduction Act, the IRS received $80 billion in new funding. However, as part of negotiations in Congress to raise the debt limit in 2023, Republicans pushed to reduce the IRS funding by $20 billion.
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