The annual battle of tax preparers is nasty, brutish, and short.
TurboTax, which dominates online filing, and H&R Block Inc., with 10,000 U.S. locations, have three months to win over taxpayers before this year's April 18 deadline. Sparing no expense in their Hobbesian struggle, TurboTax hired Academy Award winner Anthony Hopkins as an unlikely Super Bowl pitchman, and H&R Block vowed to reward customers with $32 million, $1,000 at a time.
Squeezed between the two giants is TaxAct, a 150-employee company based in Cedar Rapids, Iowa, that handled 5.5 million U.S. filers’ tax returns last year. The country's third-largest online tax-prep firm, TaxAct was started by the former employees of another online tax business that was scooped up and then shut down by TurboTax’s parent company, Intuit Inc. TaxAct has nevertheless survived and thrived, thanks in part to one secret weapon: It’s cheap.
By charging as little as a third of what TurboTax charges, TaxAct was able to consistently expand its customer base, letting word of mouth make up for a puny marketing budget. Two decades after its predecessor was shut down by TurboTax, it has positioned itself as the scrappy, growing alternative to its colossal cousins.
Those salad days may be over. TurboTax made a surprise move to undercut TaxAct’s claim to be the best deal in tax prep: For simple tax situations, such as filing a 1040EZ or 1040A form, TurboTax launched its “Absolute Zero” campaign, charging nothing at all for both federal and state returns. TaxAct already had a free federal return for basic taxpayers, but TurboTax’s thrust forced it to also drop its fee for state returns.
