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 Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 17,000 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 5-6 workers and generates about $452,000 annually.

    • The tax preparation services industry consists of about 17,000 firms that employ about 95,100 workers and generate about $7.7 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 JTH Tax (Liberty Tax Services).
    • 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
                              Source: Vertical IQ and Inforum

                              Coronavirus Update

                              Apr 21, 2022 - Tax Professionals Urge IRS Reforms
                              • Stakeholders from the tax practitioner community, including the National Association of Tax Professionals, have formed a coalition urging the Internal Revenue Service (IRS) to meaningfully reduce unnecessary burdens for taxpayers and practitioners. Problems encountered by taxpayers include processing and refund delays, difficulty accessing telephone and in-person services, and IRS collection procedures, according to the coalition. Coalition proposals include discontinuing automated compliance actions until the IRS is prepared to devote the necessary resources for a timely resolution, alignment of requests for account holds with the time it takes the IRS to process any penalty abatement requests, and the introduction of a reasonable cause penalty waiver.
                              • Some industry experts say that federal pandemic-related stimulus and relief packages have caused clients to become much more accepting of support that includes bundled tax advisory services. The pandemic impacted all small businesses, some of which weren't prepared to apply for Paycheck Protection Program funding and/or Economic Injury Disaster Loans. They didn't have contingency plans in place. They may not have known where to go to ask for assistance, experts say, and it will take years for many small businesses to recover.
                              • Many companies are turning to outside firms like tax preparation services for help with a remote workforce. According to Bloomberg News, employees who work abroad even for just a few weeks may find themselves liable for taxes in overseas jurisdictions. Many countries have double-taxation agreements in place to avoid excess taxation. Still, such agreements may only apply to federal taxes and not city or state obligations that are common in many parts of the US or to social-security liabilities common in Europe. Firms that allow too many employees to work from the same foreign country could find themselves obliged to pay local corporate taxes.
                              • A $900 billion coronavirus relief package signed into law in late December 2020 explicitly states that small businesses which received Paycheck Protection Program (PPP) loans and used those funds to incur otherwise deductible eligible expenses can deduct the expenses even if they reasonably expect to receive forgiveness of the PPP loan. The relief package deductibility rule is a reversal of the Internal Revenue Service (IRS) position that taxpayers cannot claim such a deduction because it would be an impermissible double tax benefit to have income on debt forgiveness not taxed as income and then to also allow tax deductions for the expenses paid with the forgiven loan money.
                              • The increase in telecommuting during the coronavirus outbreak has many workers thinking about home office tax deductions, but the Tax Act of 2017 eliminated a lot of individual tax breaks, including the home-office deduction for employees. As a result, about 90% of all taxpayers now claim the standard deduction.
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