With the tax season underway, millions of people are rushing to meet the IRS deadline for tax filing. At this time, what came in my mail made me aware of another rogue innovation – this one is in the tax preparation services.
Many people use tax preparers to file their tax returns. H&R Block became a major firm in this industry by organizing and harnessing talent for tax preparation. It set up systems to recruit, train and retain tax preparers each tax season. As a result, it became one of the largest employers in the country. With each tax return service running in hundreds of dollars, firms such as H&R Block could make handsome profits from providing tax filing services.
The other day, when I opened my mail box I saw a little mailer with a CD in it. Intuit had sent me a free software called TurboTax that can help me with filing my taxes. After a brief set of questions and answers, it asked me to enter data and guided me all the way to the final tax return. If one were to buy this software, the total tax filing costs is less than $100. Furthermore, Intuit updates the software each year to incorporate the latest tax laws. In short, a software can do what people used to pay tax filing experts to do earlier.
Consider the impact of this on H&R Block and other tax filing services firms. Even if all tax filing firms embraced desktop or online tax filing services, the dramatic reduction in prices will reduce their revenues. On the other hand, it they do nothing, several clients will switch to the software leading to reduction in revenues. Signs of a rogue innovation. You bet.
I was intrigued by this and visited my local H&R block office to talk with a tax preparer. He confirmed my suspicions – H&R block was affected significantly by Intuit. He told me that many of his clients started using the software to file taxes on their own. What should firms such as H&R Block do when faced with an innovation gone rogue?
Please note: I reserve the right to delete comments that are offensive, or off-topic. If in doubt, read my Comments Policy.