This year, the IRS extended tax day to May 17, giving millions of filers more time to reach for a trusted friend: TurboTax.
In the US, TurboTax — an Intuit company — controls much of the e-filing market, processing ~40m tax returns per year. But its practices have often come under scrutiny.
It’s an interesting look into the future of tax prep, and made us wonder…
Why do products like TurboTax exist?
Short answer: The US tax system is complex.
Like, no-other-government-in-the-world complex. So complex that there is an $11B industry just to help citizens file (Intuit and H&R Block control a combined 43% of this market).
Other countries, like Japan and the UK, employ a system called “precision withholding” that doesn’t require citizens to file their taxes at all. They simply receive a postcard with the amount they owe or are owed.
One reason the US tax system is complex is that the US government has used the tax code to administer social policy (e.g., tax incentives to encourage behaviors like homeownership or employment).
Tax preparers like TurboTax thrive on a complex tax system
A report by ProPublica detailed a nearly 2-decades-long effort by Intuit to enshrine TurboTax’s dominance as law.
The effort culminated in the passing of 2019’s Taxpayer First Act, which makes it illegal for the IRS to make its own online system of tax filing. In exchange, tax preparers promise to offer free services to Americans.
Since then, companies like TurboTax and H&R Block have been caught delisting free services from Google search results, using UX trickery, and even changing the domain.
What’s the alternative?
Omojola says existing fintech apps — like his ex-employer, Cash App — have direct financial relationships with users.
Even better, since the apps are used year-round, they can provide a “real-time tax position” based on earnings and spending.
Still, Omojola’s solution relies on private companies coming to the aid of citizens, which raises the question: Would we be exchanging one Intuit for another?