Friday, May 21, 2010

Tax Preperation industry changes

Earlier this week H&R Block announced it was closing 400 of its company offices out of the 8,500 they operate in the US. This comes after a 5.5% drop in revenue for this last tax season. But a decrease in revenue is not the only issue facing the tax prep industry many banks are pulling out of the “Refund Anticipation Loan” (RAL) program as states are passing legislation to limit interest fees on short term loans. This effected Jackson Hewitt in February when it lost about half it its ability to generate these loans and its revenue dropped dramatically (final numbers not yet announced) and its stock dropped 52%. Jackson Hewitt has 723 company owned offices and 5,778 franchise offices. On the upswing of the “Big 3” is the third place Liberty tax which reported an 8% increase in returns in its 62 company offices and 2,664 franchise offices.

The story not being told in the media is that the IRS passed new regulations for “Paid Preparers” beginning this fall, people being paid to prepare tax returns must have passed a test and take continuing education classes each year. Despite this only CPA’s and E.A.’s (Enrolled Agents) can represent tax payers before the IRS.

The industry has evolved from local preparers, to large national prepares who offer quick returns and quick refunds, but at a high price. The average return for those “Big 3” is $188.00 with the preparer only making $10 to $15 dollars per hour and they can do 2 returns per hour for the simpler returns. Now many returns are being prepared on line or with software like turbo tax. These are options for low income or simple returns less than $50,000 per year. However, if you need advice or have a more complicated return with business expenses or investments a trained preparer is best.

I would anticipate that the “Big 3” will raise their rates to offset the loss of volume instead of improving service and inform people of the importance of their services. That is why I am always looking to improve services like “Accountant-on - Call” for small business who can’t afford monthly services, free notary services for clients, quick turnaround on returns, year around service and prices that are not only about 45% less than the “Big 3” but about 15% below local prices for paid preparers that have offices and not out of their homes.

For a free consultation give us a call at 515.285.5544 or e-mail me at

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