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 18,600 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 $462,000 annually.
- The tax preparation services industry consists of about 18,600 firms that employ about 91,000 workers and generate about $8.6 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
Apr 2, 2024 - Steady but Flat Industry Growth
- The tax preparation industry is expected to experience slower sales growth in 2024 after a softening of demand in 2023 and some solid gains in the years after the onset of the pandemic. The industry’s year-over-year sales rose 2.5% in 2020, 8% in 2021, and 13.5% in 2022 before falling to 6.4% growth in 2023, according to Inforum and the Interindustry Economic Research Fund, Inc. Sales are projected to rise 3.1% in 2024, then see moderate average annual growth of about 4.8% through 2028, according to Inforum and the Interindustry Economic Research Fund, Inc.
- The IRS is sending 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.
- In mid-March, Deloitte announced restructuring plans that aim to trim costs and simplify operations, according to the Financial Times. The firm will pare its operating divisions from five to four: tax and legal; audit and assurance; strategy, risk, and transactions; and technology and transformation. As client demand has waned, the Big Four accounting firms have begun to trim their costs. During the pandemic, the largest accounting firms saw a spike in demand as clients sought help to solve evolving remote work needs and cope with supply chain disruptions. However, corporations and governments are pulling back on consulting spending amid growing global economic uncertainty.
- Some taxpayers expecting a refund this tax season may find they owe a balance instead, according to The Wall Street Journal. By the end of 2022, about 18.6 million taxpayers owed a collective $318 billion to the IRS in back taxes, up from the $308 billion owed in September 2019. One reason why overdue balances have risen is that the IRS paused some collections during the pandemic, slowing payments by taxpayers who were in arrears. Taxpayers’ taxes may also have gone up due to a bump in pay, either for them or their spouse, or they may have had gains through investments. New IRS funding from the Inflation Reduction Act is helping the agency pursue high-income and high-wealth individuals who either failed to file or underpaid. Tax professionals urge taxpayers to be proactive and settle their back taxes before being contacted by the IRS.
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