How Does TurboTax Make Money?

TurboTax is a tax preparation software package for income tax returns, developed in 1984 by Michael A. Chipman and was later acquired by Intuit in 1993 for approximately $225 million. TurboTax offers a free version of its software for users under a certain income level who are lodging a relatively simple tax return. However, those who need to manage more complex tax returns will be prompted to get a premium version.

Origin Story

TurboTax is a tax preparation software package for income tax returns.

The software was developed in 1984 by Michael A. Chipman and was later acquired by Intuit in 1993 for approximately $225 million.

During this period, Intuit was the leading developer of personal finance software products in the United States. Consumers in the 1990s were also very much unaccustomed to filing their taxes online.

When TurboTax Online debuted in 1999, the company effectively had a six-year head start in product development over competitors such as Microsoft.

Approximately 4.2 million copies of TurboTax were sold the year it was launched. Soon after, the company embarked on an aggressive sales campaign to ensure that its market dominance was maintained.

It also offered a freemium version for consumers on low incomes without removing functionality. In fact, the free version was so popular that TurboTax gained a 60% market share in the early 2000s.

The company grew rapidly in the ensuing years as it targeted taxpayers still reliant on paper returns. A thorough understanding of its target audience was then complemented with improvements in user design.

TurboTax experienced an 11% increase in revenue growth across its products for 2020, thanks largely to the COVID-19 pandemic.

TurboTax revenue generation

As noted earlier, TurboTax offers a free version of its software for users under a certain income level who are lodging a relatively simple tax return. To some extent, the free version is also offered to entice users to upgrade at some future point.

Any such upgrade means purchasing premium software. The company also charges consumers if they want a dedicated agent to prepare a tax return on their behalf.

Let’s start by taking a look at the premium editions on offer:

  • Deluxe ($60) – for those who want to maximize deductions and credits.
  • Premier ($90) – for individuals with rental or investment properties.
  • Self-employed ($120) – for sole proprietors who need to lodge personal or business income and expense reports.

For all three premium offerings, TurboTax can also be used to lodge state taxes for an additional fee of $50.

It’s also important to note that the above fees are for one year only. Consumers who wish to file again with TurboTax will need to purchase a license each tax time.

Premium plans include features such as:

  • Deductions for property income, donations, bonds, stocks, and cryptocurrencies.
  • Unlimited guidance and assistance while filing via a live chat.
  • Dedicated experts who can prepare tax returns for consumers. Individuals submit their documents to the system and are then matched with an expert that is best suited to their needs. TurboTax claim that their tax experts and certified practicing accountants (CPAs) have an average of 12 years of experience in the industry.

Key takeaways:

  • TurboTax is a software product that helps individuals and businesses lodge tax returns. It was developed in 1984 by Michael A. Chipman and then acquired by Intuit in 1993. Intuit was the first mover in the industry as the online lodgement of tax returns became more common at the turn of the millennium.
  • TurboTax offers a free version of its software for lower-income users with a relatively straightforward lodgement. It also offers three premium versions: Deluxe, Premier, and Self-Employed.
  • TurboTax also offers guidance for those who require help completing their tax return. All premium software users can also have a certified accountant complete the entire tax return on their behalf.

Read Also: Freemium Business Model, How Does Mint Make Money.

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