Some independent tax preparers are in a panic this month that the largest national tax preparation firm is offering to do tax returns for free through its network of retail stores. The big company has been losing money, its stock price is down, and consumer reviews have been terrible. The free service deal is apparently a marketing effort to get them back on track. The firm sells other financial services to customers who take advantage of its free tax return preparation deal.
I reminded one tax associate of the fundamental rule in digital marketing: when there is no price for a product that you are using then you can be certain that you and your personal data are the real product. That is certainly the case here when to company has already announced plans to market to customers based on their financial profile. Besides, it is highly unlikely that people who use free tax services are viable prospective clients anyway.
People with simple finances should be able to file their taxes for free. In fact IRS free-file through partnerships with commercial tax preparers has been an important part of the filing options for years. I do a number of free tax return filings every year. But for those with complicated situations hiring the best and even most expensive tax professional is a profitable move. I’ve also always tried to convince people (tax professionals and clients) that the act of filing of the tax return is perhaps the most trivial part of the tax management process. One simple tax planning strategy, for example, is likely to save more than a decade’s worth of tax preparation expenses. In these cases, the tax return preparation we may be irrelevant.
Other tax professional commented that they earn 3 to 4 times more for handing IRS communication audits for improperly handled items that they formerly did handling the basic tax return filing. In other words, it might be better for professional preparers to focus on fixing errors and reducing penalties for those who prepare their own tax returns. This certainly describes my practice. In fact I put more effort into handling tax cases where taxpayers did exactly that I previously advised them not to do! They apparently figured they would not get caught but found that the cost was much higher when they did have to deal with IRS. It is difficult to know at this point how rapidly these correspondence audits are expanding and whether the increase is attributable to free tax return preparation services.