If you thought Capitol Hill reporters had it bad—having to follow every last tax shift, rate hike, and exemption phase-out as Congress slogged toward the fiscal cliff—consider what it was like for the employees at TurboTax.
The company’s software must be updated to incorporate changes to the tax code every year. But in 2012, with the expiration of the Bush tax cuts looming, the degree of potential change was unprecedented. In an ideal world, the government would have calmly negotiated a bill well in advance of Jan. 1, giving the tax-preparation industry adequate time to respond. Fortunately for filers, the analysts and coders at TurboTax are not under the slightest impression that the Congress we have is ideal. Rather than waiting for the final legislation to arrive and then getting to work, they opted to write the 2013 version of their software in parallel to the negotiations Washington has been having for months, creating chunks of code for multiple outcomes on any given provision. Most of it would end up junked, but it beat having to scramble at the 11th hour—or beyond, as the case turned out to be.
“We sort of anticipated that, given the politics and the nature of the law, that it would be a last-minute thing,” says Bob Meighan, a vice president at TurboTax. “We always have literally hundreds of CPAs, engineers, writers on staff to accommodate the annual tax law changes. They just got a little more focused on closely following the legislation, and closely following the political scene, and doing a better job of anticipating what might happen.”
With the fiscal cliff, many of the provisions the political parties were debating were binary: They would either make it into law, or not. “What our team does is—so that we’re not running around with our heads cut off at the last minute, trying to code all this stuff into the product—is plan both scenarios,” says Meighan. “That way, when legislation is passed or not passed, we can pretty much flip a switch and the program will reflect that outcome.”
Based in San Diego, TurboTax is a division of Intuit (INTU). Last year, 25 million Americans used its software to file their taxes, the company says. About 70 percent do so online, the remainder off a desktop program.
Most of the tax law signed into effect by President Obama on Jan. 2 affects income earned in 2013, and most Americans won’t file on it until 2014. But a handful of provisions affect 2012 income, says Meighan, such as teachers’ ability to deduct the purchase of classroom supplies, issues relating to states without income tax, and the alternative minimum tax, which was patched to become indexed to inflation.
After a 36-hour push following Congress’s passage of the fiscal cliff deal, TurboTax’s code is now 80 percent to 90 percent complete, Meighan says. An update to come will address lingering issues. TurboTax guarantees its calculations to be 100 percent accurate, offering to pay customers’ penalties and interest in the case of errors. The company doesn’t carry insurance in this respect, Meighan says, but simply pays any such amounts as a cost of doing business.
Will there be noticeably more pop-up text explaining just how much has changed? “I’d probably say that we’re not going to call it out,” Meighan says. “Most people are looking to get from the starting line to the refund relatively quickly, and they may not have the appetite to know all the nuances or the changes in the tax law. … Fiscal cliff or no fiscal cliff, we’re seeing that today, given the fragile economy and the job market, people overall are just interested in saving money and getting refunds into their pockets.”