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
Mar 14, 2025 - IRS to Cut 18,000 Jobs
- The Internal Revenue Service (IRS) stands to lose about 20% of its workforce by May 15 due to staffing cuts ordered by the Trump administration. The expected layoffs of approximately 18,000 IRS workers is part of the Department of Government Efficiency’s (DOGE) government-wide purge of federal workers. Tax industry experts warn that the staff cuts coming so close to the government’s April 15th tax deadline will undoubtedly negatively impact the agency’s ability to process returns, refunds, and collections. The effects could ripple further than just tax return processing, though, since the IRS collects funds that pay for virtually all of the federal government. Trump has already fired 6,700 probationary IRS employees, but a federal judge in March ordered those cuts be reversed.
- Accounting practices face a staffing shortage heading into the 2025 tax season. Several years of attrition through retirements and middle-aged CPA burnout has left the accounting industry about 300,000 workers short with not enough fresh recruits to replace them. The shortage is likely to affect accounting pros, CPAs and taxpayers alike in the coming year. Tax professionals are overloaded with work - which makes them prone to mistakes and filing errors - leaving many without the bandwidth to take on new clients. Those lost clients then can potentially make their own mistakes doing taxes themselves, creating a domino effect of accounting headaches. The problem could be compounded by the IRS itself, which is already lacking enough accountants to efficiently process returns and now faces a government-wide hiring freeze in January 2025.
- In 2023, starting salaries for new CPAs increased over 2022 and bested inflation, but industry insiders suggest CPA firms need to do more to compete with other industries for top talent, according to the Journal of Accountancy. CPA employers increased 2023 starting salaries by 7%, three points higher than the inflation rate, according to the National Association of Colleges and Employers. Class of 2023 CPA starting salaries were $65,086 compared to $60,698 for Class of 2022. However, starting salaries for computer and information science positions in 2023 were $91,411. In addition to uncompetitive starting salaries, work overload and burnout hinder recruiting and retention. In recent flash polls of the top 500 firms outside the Big Four by the Association of International Certified Public Accountants (AICPA), 88% of firms said they increased starting pay in the last 12 months, and 57% said they plan to address workload balance.
- For the tax year 2023, about 2.3 million tax returns utilized the Energy Efficient Home Improvement credit (25C tax credit) under the Inflation Reduction Act (IRA) of 2022, according to the Internal Revenue Service’s (IRS) most recent clean energy tax credit statistics. The 25C tax credits, which are based on 30% of the improvement’s cost, help homeowners pay for qualifying energy-efficiency improvements to their primary or secondary residences. The credits include a total annual credit of $1,200 for insulation and air-sealing home-improvement projects. The credits are available until 2032, and the combined annual maximum credit is capped at $3,200. In the 2023 tax year, insulation and air-sealing materials and systems were the most popular improvements, accounting for nearly 30% of all returns that claimed a 24C credit.
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