Tax Returns the American Way

Online tax preparation in the US has still to develop as a significant alternative to software-based and professional tax preparation methods. This is according to the latest findings from a Jupiter consumer survey entitled 'Failed Experiment: Online Tax Preparation'.

The study shows that there has been almost no change to the level of online US consumers who prepare their tax returns using the Web. However, the results do reveal a slight increase (2.6%) in the number who would use an accountant or financial advisor to prepare their taxes instead.

Looking at specifics, the research has found that, among online returners in 2001, 5.1% used a system called TurboTax for the Web (with the same percent planning to use it in 2002); whilst 0.6% used a competitive system called H&R Block's Do-It-Yourself Online (with one percent planning to repeat this). Given this state of affairs, Jupiter analysts have suggested that online tax preparation providers in the US should focus their future development away from the consumer and onto the professional sector.

The findings also show that just under 31% of online US households plan to file their tax returns electronically this year, compared with the 30% of all tax returns the IRS claimed were filed electronically last year in the States. Because US taxpayers often e-file (any electronic transmission of a tax return, rather than filing on paper) through their accountant or tax-preparer, Jupiter analysts suggest that respondents may have under-reported their likelihood to do so. Worryingly, the IRS is required by statute to receive 80% of all its US tax returns electronically by tax year 2007.

However, on a more positive note, the survey found that e-filing will probably become more popular among middle rather than high income households. Over a quarter (29%) of middle income online households replied that they plan to file electronically in future, whereas 54% of higher income online households intend to file by completing traditional paper forms. The complexity of higher income tax returns may act as an inhibitor to adoption, though the relatively small number of wealthy US households means that this will have a minimal impact overall.

'Despite the fanfare, U.S. taxpayers are not interested in preparing their tax returns online this year,' said Robert Sterling, Jupiter senior analyst. 'However, the news is not all bad. While the Web is a letdown as a preparation vehicle, it is showing ever-greater potential as a preparation resource. Media Metrix data show significant traffic growth and depth of use at the major tax sites. Online tax preparation providers should concentrate marketing and product development efforts on the tax preparers. There are still great opportunities in automating data transfer between financial institutions and accountants and in creating collaborative tools for financial professionals to better manage client relationships year round'.

All articles 2006-22 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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