Six Fast Facts on Tax Franchises
1. While taxes are the focus, many tax preparation franchises have evolved to also assist clients in other areas such as: accounting, bookkeeping, billing or payroll services. Major franchise players include G.I. Tax, H&R Block, Jackson Hewitt, Liberty Tax, Paramount Tax, and more.
2. Although the services of these franchises are very similar, there can be concentrations. For example SiempreTax+, an affiliate of Liberty Tax, specializes in tax return preparation for individuals and small businesses in the Hispanic & Latino market. It also offers a variety of additional services developed specifically to meet the needs of Hispanic consumers.
3. The majority of tax preparers are truly small businesses. Per the most recent data, 37% of tax businesses are run by a single person, and 53% employ fewer than ten people.
4. The percentage of tax filers in the U.S. that use a professional tax preparer, such as a tax franchise, has been steady over the years. Lack of time and an increasingly complicated tax code are leading more and more people and companies to seek outside help in preparing their tax returns. The IRS estimates that it takes 16 hours (including the time it takes to gather the necessary documents) to complete the Form 1040, the individual return that nearly 70% of Americans use. However, if individuals own a business, have investments beyond a typical IRA or 401K, or have any kind of other layers to work out on his or her tax forms, their taxes could be more complicated to fill out and file. Tax franchises can help these individuals sort through the complex tax filing process.
5. Tax preparation franchises also provide peace-of-mind to their customers. When an individual signs a tax return, it means he or she is on the hook for any questions the government might have – even years down the road. By using a tax professional, like a franchise, individuals can have a buffer between them and the IRS in case an audit occurs.
6. Many people file their taxes online. Because of this, tax preparers have started to offer online services that fill out and file tax forms electronically, allowing taxpayers to compute and file their own taxes at home.
The Market for Tax Franchise Services
According to Accounting Today, taxpayers—even with all of the options for self-serve tax preparation—still prefer an independent tax preparer’s opinion on their individual situations. From its website:
<blockquote>
Taxpayers still prefer an advocate — their tax pro — when they need answers and advice. But taxpayers also see value in the content on the IRS website.
The [Comprehensive Taxpayer Attitude Survey] also shows taxpayers value an independent interpretation of the tax law and how it impacts them. Reference materials from non-IRS sources are the preferred choice for taxpayers to get information about their taxes.
But taxpayers want comfort that their tax pro is doing a good job. Over 90 percent of all taxpayers believe it is somewhat or very important that tax preparers meet competency and ethical standards to practice. This statistic has long been the IRS’s fuel for tax preparer regulation.
For tax pros, your visible credentials are important here. Taxpayers like accountability. Your website and communications with your clients should be informative and display your expertise.</blockquote>
This is backed up with statistics from IRS.gov. From statistics compiled in early June 2021, of the 140,074,000 individual tax returns e-filed for the year, 53.7% were prepared by a tax professional—a 3% increase over the percentage at the same time in 2020 (50.7%).
However, both percentages still lag behind the percentage of e-filed individual tax returns prepared by a professional at that point in 2019 (56.7%), an indicator that COVID-19 likely did impact the desire of taxpayers to visit a professional tax preparer over the past couple of years, but they are on their way back.
Benefits of Being a Tax Franchisee
The benefits of owning a franchise can be numerous vs. independent operation. Here are a few of the top benefits for those who decide to own a tax franchise instead of going at it alone.
Name Recognition: When it comes to finding a service provider to handle their money, people are likely going to want to deal with someone they trust. Franchises tend to have established brand names that, in many instances, have been around for years. If you buy a tax franchise, you will be given the right to associate your business with that tax franchise company's name, trademarks, and logo.
Advertising: Getting your name out there can be expensive and sometimes it can be hard to know where to spend your advertising and marketing budget. With a franchise, national advertising is typically done by the franchisor. In addition, though in general local advertising is up to you, you’ll have guidelines in place.
Training: A popular feature with all franchises, training is provided to tax franchisees. For instance, H&R Block franchisees go through initial training of over 20 hours of classroom/virtual instruction and 16 hours of on-the-job training. The franchisor also offers ongoing training opportunities related to the preparation of tax returns. Franchisees and their employees may also be trained annually on H&R Block’s products and services or on other compliance-related matters that the company designates as required training.
Support: Before the franchise is opened, in addition to initial training, tax franchisees often receive support in developing their business plan. While in business, franchisees will have access to the franchisor’s operations manual, computer systems, and other items designed to help you successfully manage your tax preparation business. Remember the franchisor can’t be successful without you!