Forrester Research, Inc. (Nasdaq: FORR) projects that 6 million US households will prepare tax returns online this year, up from 2 million last year. The increase is owing to a combination of better online tax and financial service offerings and the growing comfort level of online users toward electronically assisted tax preparation.
This tax season, automated advances have made online tax preparation easier and more convenient for consumers. Prepopulated forms and automated downloads of W-2 and 1099 forms make it quicker and simpler to prepare taxes online. Over the next five years, Forrester predicts that financial firms, payroll providers, tax preparers, tax agencies, and other participants will be linked in real time over the Net in what Forrester calls tax eBusiness networks.
“2001 will be remembered as the year that the obstacles to easy, Net-based tax preparation were eliminated,” said Jaime Punishill, senior analyst at Forrester. “And with the IRS on a paper-eradication crusade, the possibility of eliminating the need to send in paper copies of W-2s and 1099s may soon become obsolete. Financial consumers have also become quite savvy in their online usage. More than 15 million US households have transferred balances, paid bills, or traded stocks online, and another 5 million will do so for the first time this year, laying the groundwork for the online tax preparation boom.”
What does this mean for online filers, vendors, and the tax industry? Filers will experience a faster and easier way to file online. Because all agencies will be connected in real time, filers will enter their information just once, instead of filling out various forms and sending them off to different locations. Vendors will attract more customers because of the simplicity and immediacy of filing online, coupled with tax assistance services. For the tax industry as a whole, Forrester estimates that 80% of tax filing will be done online by 2007.
Until now, taxpayers fell into two categories — “soloists” (those who prepare their own taxes) and “delegators” (those who hire professionals to prepare their tax returns). But Forrester believes that many households are actually “validators” (those willing to do their own tax preparation and planning, but want someone to review their work and decisions).
“Validators are a whole new market,” added Punishill. “A lot of people actually want to do their own taxes but just need someone to look over what they’ve done and give feedback. Services from the likes of H&R Block have already begun to target this consumer segment.”