Tax Wars: Is Digital Software Killing Traditional Tax Tools?

It’s tax season. Have you filed your taxes yet? Don’t forget that April 15 is the deadline.

With that reminder out of the way, let’s discuss the tax wars and how you file your taxes.

There are plenty of tax preparation options. Some use a personal accountant, a tax-savvy friend, or a family member. Others brave enough opt to complete the IRS forms themselves. But the largest percentage of Americans rely on digital tax software.

While there are many options, like TaxAct or Liberty Tax, the most popular e-filing solution is TurboTax by Intuit.

What Happened to Brick and Mortar?

 Think of your last big purchases? Did you go to the store or were they delivered after a few clicks on Amazon?

The same digital trend that flipped commerce upside down is also shaping tax filing. And just as large retailers are feeling the heat, so are tax centers. Last year, H&R Block announced it was closing 400 locations. According to Wall Street, in the same amount of time it took for H&R’s stock to dip 15 percent, Intuit saw a 260 percent increase.

Why? Because people would rather do their taxes in their pajamas on the weekend than use spare time to consult with a practitioner. E-filing software is quick and easy to use. You respond to simple questions, take pictures of your W-2, and can save results for quicker filing the following year.

Not to mention, it’s cheap. Most digital tax software costs less than $100 to file both state and federal taxes. It’s hard for physical tax locations to pay salary and overhead and still compete with those prices.

Lastly, do-it-yourself tax software works best for the masses. Most tax experts agree that tax software is suited for those with simpler returns making less than $100,000 a year. That income range includes about 90 percent of Americans, leaving only 10 percent for other tax solutions.

Can Brick and Mortar Survive?

 Sure, if they adapt. You don’t have to search long to find a company that refused to adopt the digital age and no longer exists. Blockbuster anyone?

Physical locations are feeling the pressure, and some are responding. Again, while H&R Block is closing locations, it also offers do-it-yourself tax software that competes quite well with TurboTax.

And as mentioned above, there is always a market of higher income earners or those with complicated returns. This group wants the confidence that comes with trained professionals who can help them with their tricky returns or give them personalized solutions to limit their higher tax liabilities. Not to mention, physical locations and trained professionals are incredibly handy in the event of an audit.

Which Solution is Best for Me?

 There are several great sites that do a good job not only comparing tax software, like H&R and TurboTax, but also comparing software to using an accountant.

The main things you’ll need to consider are your budget, how complicated you expect your return to be, and whether you’ll need an ongoing relationship. Because while tax software is great during tax season, a professional can answer your questions year-round.