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 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
Recent Developments
Jun 4, 2024 - IRS to Make Free Tax Prep Permanent
- In late May, the IRS announced it would make permanent the Direct File free tax filing system that it piloted during the last tax season. Over 140,800 taxpayers in 12 states used Direct File to file their taxes directly with the IRS during the last tax season. During the pilot, all states and the District of Columbia were eligible to use Direct File. The IRS hopes the expansion will encourage more states to participate and increase taxpayer eligibility while continuing to integrate with state tax systems. The Direct File program has met with pushback by some Republican lawmakers and some in the tax preparation industry. Direct File’s critics suggest it’s unnecessary, as taxpayers already have access to free, third-party tax prep services through the IRS’s Free File partners program. IRS officials counter that Direct File is just another tool to help taxpayers file quickly, easily, and at no cost.
- A recent study found that companies modify their tax strategies based on shifts in the IRS’s budget, according to Accounting Today. The study appeared in the American Accounting Association’s Journal of Forensic Accounting Research and sought to examine the relationship between IRS budgets, corporate tax strategy, and tax fraud. The study’s results suggest that companies’ appetites for tax risk and the potential for fraud increase if firms feel IRS resources and its ability to perform audits have been reduced. The study’s researchers examined financial documents of nearly 11,000 companies between 2011 and 2021 and looked for effective tax rates and tax benefits claimed. Researchers also studied IRS budgets. Previous studies suggested companies use past audit rates to determine their tax aggressiveness, but the new report found evidence that firms seem to rely more on IRS budget data to plan their tax positions.
- The IRS issued a consumer alert in May, urging taxpayers to be wary of scams involving the sick and family leave credit, the fuel tax credit, and household employment taxes, according to the Journal of Accountancy. Scammers and social media posts have falsely suggested taxpayers can receive large tax refunds by leveraging the tax credits, to which, in most cases, they are not entitled. The IRS said thousands of taxpayers have been taken in by such false claims, which could delay their refunds and bring fines and/or criminal charges. The IRS suggests taxpayers have their returns reviewed by a reputable tax professional to ensure any credits they claim are legitimate. Taxpayers who feel they may have claimed the credits in error may file an amended return to avoid possible penalties.
- The IRS sent notices to about 125,000 individuals who earned $400,000 or more and neglected to file returns between 2017 and 2021, according to The Wall Street Journal. Tax experts note that although taxpayers are responsible for preparing and paying their taxes accurately each year, some fail to do so out of procrastination, financial problems, or intent to evade. The IRS has a good idea of who isn’t filing but, until recently, lacked the resources to pursue them. The Inflation Reduction Act (IRA) passed in 2022 included $80 billion in IRS funding to streamline agency operations and beef up enforcement. However, Republicans in Congress have vowed to cut IRA-related IRS funding by about $20 billion.
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