Obamacare Will Be a Boon for Paid Tax Preparers

Obamacare, introduced with the aim of providing quality affordable health care, will add significantly to the population of new tax filers and increase the complexity of tax filing. As a result, tax-preparation service providers such as H&R Block (NYSE: HRB  )  and JTH Holding (NASDAQ: TAX  ) are expected to be key beneficiaries. In contrast, the impact on tax preparation software company Intuit (NASDAQ: INTU  ) is less certain.

Reform driving the need for paid tax preparation
Two key tax-related implications of the Affordable Tax Act are the advanced tax credit and the tax penalty. Firstly, the government is providing the lower income population with advanced tax credits for their health insurance coverage needs. In return, a beneficiary is bound by law to file a 2014 tax return in 2015. Secondly, a person who neither meets the government's baseline health coverage requirement nor is exempt will incur a tax penalty when they file a tax return in 2015.

Without going further into the nitty-gritty details of the tax act, it is obvious that more first-time tax filers will come on board in 2015. Also, more people will require assistance to file their tax returns, given the complexity of calculations and the likelihood of new IRS documentation.

Online and offline marketing efforts
Most people are naturally confused about what the Affordable Care Act means to them, along with the potential tax implications. In today's world, it is typical to simply search for answers on the Internet before even speaking to family or friends. JTH has introduced its own web portal complete with commonly asked questions and a tax subsidy calculator. The website address (http://www.health caretaxinfo.com/) makes it easy for potential clients to knock on its doors from a search engine optimization, or SEO, angle. Although the website address of the portal is titled in a generic manner, 'helpful' links to JTH's Liberty Tax Service are displayed prominently on the site.

Of course, not everyone is Internet-savvy and some will still prefer to meet face-to-face to discuss their tax issues. Consequently, JTH has also organized seminars for individuals and small business owners to educate them. According to JTH's recent poll of 800 clients, about 25% of them are without health insurance coverage, which is a clear indicator of the potential demand for its services. JTH's online and offline marketing efforts should put the company in a good position to seize the associated growth opportunities.

Size and brand advantages
Similarly to JTH, H&R Block has gone all-out to reach out to its current and potential customers through a health micro-site, digital ads, and focus groups. However, H&R Block has a slight edge over JTH for two reasons.

Firstly, H&R Block has a larger base of clients than JTH; it is the largest tax preparer in the U.S. while JTH is third. Since it is easier to sell new services to existing clients, H&R Block has an edge in churning out incremental revenue opportunities from this entire exercise. H&R Block is fully capitalizing on that by sending each of its clients a customized health report based on the tax information they submitted. This report will allow its clients to determine their eligibility for advanced tax credits and other government assistance programs, and estimate insurance premium costs and potential tax penalties.

Secondly, the specialized and customized nature of tax filing services suggests that people will feel safe leaving their tax filing needs in the hands of a trusted retail brand like H&R Block. This situation favors the incumbent, H&R Block, which has the most recognizable brand in the space.

Choosing between DIY software and outside tax preparers
Intuit has updated its TurboTax software for the most recent changes resulting from the Affordable Care Act. It also set up a portal titled TurboTax AnswerXchange, which boasts a list of more than 700,000 frequently asked questions, or FAQs, relating to the Affordable Care Act. By answering a series of simple guided questions, users of the portal are also able to find out if they are required to be insured, and if yes, what the approximate cost will be.

While I don't deny that all this is very helpful, Intuit may not be able to capitalize on the increased tax-filing needs that result from the Affordable Care Act to the same degree as its tax-preparer peers. New tax filers are unlikely to commit time and effort to learning a new tax preparation program such as TurboTax.

Even for seasoned tax filers faced with new IRS forms and difficult calculations, there will still be a steep learning curve for new features or modules to tackle the new filing requirements. In fact, there is likely to be a shift in market share from do-it-yourself tax filing to paid tax preparation services, to the dismay of Intuit.

Conclusion
JTH estimates that there will be an increase of between 1.5 million to 2 million tax filers this year as a result of the Affordable Tax Act, which suggests that future growth prospects look very promising. Unfortunately, the positives have been largely factored into the stock prices of both JTH and H&R Block, as they trade at the high end of their 52-week trading range. Investors will be rewarded for their patience if they wait for better entry prices.

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Read/Post Comments (11) | Recommend This Article (3)

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  • Report this Comment On December 28, 2013, at 1:25 PM, vbfg56tg wrote:

    Obama supporters will go hysterical over this well sourced list of 487 examples of his lying, lawbreaking, corruption, cronyism, etc. http://danfromsquirrelhill.wordpress.com/2013/08/15/obama-25...

  • Report this Comment On December 28, 2013, at 1:54 PM, Mjoiner wrote:

    I'm an Office Leader and Tax Specialist II for one of the nation's largest income tax prep companies.

    I HATE that I now have to be an expert in the Affordable Care Act aka Odummercare in addition to being a tax expert. I have a hard enough time keeping up with all the changes in income tax law - both federal and state - that I am required to know as it is. My company has added a health insurance check to our income tax return program and it generally takes me 15 minutes MORE to complete this extra junk before the tax return can be printed and signed, but we do not get paid any more money to do so.

    There are already thousands of income tax preparers out there who are filing fraudulent tax returns, and this added step will make them add more fraud onto the ever shrinking taxpayer's backs.

    Not to mention that the federal government has NO verification system in place to make sure someone has health insurance coverage for every member of that person's family, nor have I heard anything saying the government is going to have this system ready in the future. Also, the government is paying a subsidy for ANYONE who asks for one without verifying their income meets the guidelines.

    I've been warning people for the past 3 years that this was a massive mess and they didn't believe me. Now they do.

    PLEASE REPEAL THIS MESS IMMEDIATELY CONGRESS.

    ANYONE using the government's healthcare.gov website should check their credit report and their tax return status very regularly since that website is NOT SECURE. If you are a victim of fraud - and identity theft is RAMPANT - go to the Federal Trade Commission and use their step by step process to report and halt the identity theft. Their website is consumer.ftc.gov

  • Report this Comment On December 28, 2013, at 2:05 PM, johnestromjr wrote:

    We're really not interested in ObamaCare being a "boon" to tax preparers. We HATE ObamaCare and the arrogance of government - ANY government - ramming this down our throats. Thank you Chief Justice Roberts - you closet leftist. We no longer trust you. And thank you to Pelosi, that San Francisco idiot who made sure NO ONE knew what was in ObamaCare [and still don't fully] and thank you to Harry Reid, that buffoon the fools of Nevada re-elected. Finally, a special "thank you" to the LIAR Obama who told America repeatedly that "If you LIKE your health care plan you can keep it. If you LIKE your doctor you can keep your doctor. He has repeatedly lied. So have the Democrats lied.

    In less that 11 months we can re-pay these lying Democrats for their perfidy. Make sure you vote them out.

  • Report this Comment On December 28, 2013, at 6:13 PM, volcan357 wrote:

    They need to simplify the tax code but instead they make it more complicated. They are heading down the wrong road. Obviously it is not going to end well.

  • Report this Comment On December 28, 2013, at 6:40 PM, MikeY7381 wrote:

    It isn't a "boon" to anyone if the country goes bankrupt.

  • Report this Comment On December 28, 2013, at 8:20 PM, POTUS wrote:

    The Obamacare tax penalty isn't that difficult to calculate although you do need to know all the ins and outs of it.

    You definitely don't need to pay someone to do it.

    http://obamacarefee.com/ actually does a pretty good job, I found it to be very accurate, and it is totally free.

  • Report this Comment On December 28, 2013, at 9:22 PM, jmgconsultants wrote:

    Of course it will be with more then 27 tax increase because of Obamacare, plus the penalty tax for not having coverage is figured out from your rebate if you have any. Once again I repeat Obamacare must go as it is the worst law that has ever passed.

  • Report this Comment On December 29, 2013, at 8:16 AM, guenavere wrote:

    Noone should have to pay a penalty in the first place. So it will be a boon for tax preparers and and an albatross around every person who does not have health coverage.

  • Report this Comment On December 29, 2013, at 8:47 AM, jimmymae wrote:

    That's a bigger drain on the middle class pocketbooks. Somebody has to pay for this foolishness and guess who it is.

  • Report this Comment On December 29, 2013, at 9:58 AM, openhanded wrote:

    As a European I know I stand outside for many American views on ObamaCare.

    I've lived here for years, worked alongside many Americans of various ages and abilities, all virtually all, not just hard working but driven to making themselves survive the next bill dropping at their door.

    I've heard of fears connected to this idea and with in this nation, like it or not, there is a strong paranoia. Justified....at times yes, but perpetuated OH YES.

    Nixon was recorded as loving the idea of taxing via insurance his own peoples healthcare, MONEY!

    In many parts of Europe, healthcare is free, you pay via your work, money is deducted automatically.

    Ambulances, Doctors, Hospitals, Operations are FREE.

    IF sick most prescriptions are to be paid for yes, BUT if you carry Diabetes and a vast amount of other health problems, you get as does the retired, FREE Prescriptions.

    I am NOT suggesting ObamaCare isn't good enough, I am suggesting it IS a way forward, but without the constant complications placed on it.

    These are done by 'interested parties' financially bound to lose, as they can't gain personal gain from Free care, think about that.

    Everyone reading this SHOULD get medical help without having to worry about how to pay, its YOUR LIFE, their shouldn't be a price on such a thing.

    To ensure (in my opinion and many in Europe) Your own politicians are ensuring you, the people they supposedly serve, fear this idea. MONEY.

    Complicate things so you get put off, who likes to fill in countless forms?

    So many have worked hard, in my local store. people of 70 yrs are packing bags, working as cashiers...how can this be right?

    Those supposedly standing up for the rights of the people will NEVER suffer queues, bills too high, food you can't afford and need to skip, rent that needs to be paid.

    Their loved ones will NEVER be turned away, or need to be watched as they gasp for breath, double up in pain, cough till they can't take it any more.

    So why should any of you?

    This is a GREAT nation, vibrant and alive, but MONEY has ALWAYS been the seat of power and destruction, built upon bricks and towers of lies.

    I have no idea how much of this will be allowed to be read, nor how annoyed any of you (if) reading this will feel.

    But surely, FREE Healthcare is worth standing up for, YOUR Health is worth standing up for.

    No tax connections or diversions or divisions, just allow the people their God given right to a decent health and Hospitals , drugs, operations, nursing, and any and all connected to the so called 'CARING PROFESSION' NOT THE PROFIT PROFESSION.

    Sorry this is so long.

    Good luck with your health and with your choices.

  • Report this Comment On December 29, 2013, at 11:49 AM, Widowmaker6 wrote:

    obamaScare is a FAILURE - only an idiot would go to the website and put in their personal info

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