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 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

                              Recent Developments

                              Nov 1, 2022 - IRS Makes Changes to Hotline for Tax Pros
                              • In an October email to tax professionals, the Internal Revenue Service said it was implementing a pilot program for its Practitioner Priority Service (PPS) that allows tax preparers to reach IRS assistance by telephone. As wait times for the PPS have increased over the past few years, some tax professionals have used third-party robocalling services to help them jump to the front of the phone queue. The new PPS system will require callers to repeat certain phrases that are vetted by speech recognition software before they can be forwarded to IRS service personnel.
                              • If Republicans take control of the House and/or the Senate in the 2022 midterms, they could undercut the $80 billion in IRS funding increases that were included in the Inflation Reduction Act (IRA), according to The Wall Street Journal. The increased funding aims to improve taxpayer service, increase audit enforcement, and implement technology improvements. GOP leaders have said if they retake either house of Congress, they plan to introduce legislation to repeal the IRS funding increase, which President Biden would likely veto. However, the IRS funding in the IRA could face an uphill battle during annual budget negotiations if the GOP controls the House or the Senate, or both.
                              • In September, the IRS issued a memorandum saying that it discovered that some recipients of Paycheck Production Program (PPP) loans whose loans were forgiven didn’t meet one or more of the eligibility requirements, and the loans must be repaid. The IRS said taxpayers who inappropriately received loan forgiveness should comply by filing amended tax returns that include forgiven loan proceeds amounts in their stated income. According to NBC News, up to $80 billion, or about 10%, of the $800 billion dispersed through the PPP may have been fraudulent.
                              • Also in September, the Treasury Inspector General for Tax Administration (TIGTA) issued a report saying that delays in management actions at the IRS are contributing to continued backlogs of millions of unprocessed tax returns and other types tax account work. At the end of 2021, the IRS had a backlog of 8.2 million tax returns and about 2.6 million tax account transactions in its backlog. As of September 9, 2022, the IRS had about 7.2 million unprocessed returns filed this year – both for the most recent tax year and late-filed returns from past years. The TIGTA report cited employment shortfalls and outdated equipment at the IRS as primary causes for the delays, including antiquated mail-sorting equipment. The recently passed Inflation Reduction Act (IRA) includes $80 billion in IRS funding, with more than $45 billion for enforcement, about $25 billion for operations support, and $4.7 for business systems, including computer system upgrades. Another $3.2 billion will fund enhancements to taxpayer services.
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