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Tax Preparation Industry Report 2011: Tax Preparation Industry at a Glance
Tax preparation is unusual in that more so than any other industry, it provides a service which assists with a process that legally every adult American is requiredtodo—submitan
income tax return. Because of that, tax preparation is big business.
38,287 firms operated in the field last year, generating 7.7 billion
in annual revenue. Because it is required, tax preparation tends to
be recession resistant. Of the 82 million returns prepared by paid
preparers, franchises handled 23 percent of them.
Tax Preparation Industry Background
The vast, vast majority or tax preparers are small—37% were run
by a single person, while 53% were operated by less than ten.
There were 128,393 total employees in the field last year. There
were plenty of tax returns to go around. Approximately, 144 million
individuals filed returns as did 2. 4 million corporations.
One of the most notable aspects of the tax preparation industry is
how seasonal it is. The industry only comes into being for essentially
the four months before April 15, the day on which income tax returns
are due for individuals. Because of this reality, those interested in
a tax preparation franchise such as Liberty should be those looking
for a part-time opportunity. It will not provide year round business,
and this can be a unique benefit for those looking for extra work for
a couple of months, but a detriment to those looking for more of a
full time franchise. One approach some tax preparation businesses
take to avoid the stark seasonality of the tax preparation business
is to diversify and enter other related fields. Some such as Listo
provide additional accounting and payroll services.
Others, like FedUSA are involved in the insurance industry as well
as tax preparation. RALs, or refund anticipation loans, have been
a recent controversial issue in the tax preparation business. These
loans, which have been around since the 1980s, but have become
increasingly popular with electronic filing, give a short-term loan to
consumers secured by their eventual tax refund. Generally this is
done through the tax preparer, and the bank who issues the loan
and hosts the account in which the loan is deposited charges a
fee. In 2008, 7.2 million people received RALs. This practice has
become controversial because these are high interest, low risk
loans which are geared toward poorer people, and there have
been several lawsuits brought by government entities charging tax
preparer firms with predatory lending practices regarding these
loans. To address this, the IRS in 2011 decided to stop providing tax
preparers with the information they needed to issue these loans,
at least temporarily ending RALs, and putting some smaller tax
preparation firms, which relied on RALs for much of their revenue,
out of business.
New Licensing Rules
Another aspect of tax preparation that is not present in many other
franchises in the need for licensing. Until this year, only Oregon
and California required tax preparers to be registered and licensed.