New Tax Form Is a Sign of Shift Toward TurboTax, Away From H&R Block
(Bloomberg) -- The IRS’s new 1040 tax form doesn’t exactly fit on a standard postcard as Republicans promised, but it’s smaller and simpler than before -- and it may push more filers to use software rather than in-person tax preparers.
Tax software companies such as TurboTax’s parent Intuit Inc. could benefit from the draft form released Tuesday, while tax preparers including H&R Block Inc. may see fewer customers.
The 1040 form for the spring 2019 filing season fits on two half-sheets of typing paper and has accompanying instructions and worksheets. Before the Republican Congress enacted its massive tax cut in December, House Speaker Paul Ryan promised a simpler tax form that would fit on a postcard. The previous form took up two full sheets of paper.
As filing taxes becomes easier, more people will opt for low-cost software rather than pricier in-person services, said Don Williamson, executive director of American University’s Kogod Tax Policy Center.
“That’s why you saw H&R Block’s stock fall so much last week,’’ he said. “Intuit will continue to flourish.’’
H&R Block fell as much as 21 percent last week after an earnings call revealed that the law change could limit how much tax advisers charge customers. It is down 12.8 percent for the year. Intuit is up 28.1 percent for 2018.
Intuit declined to comment. H&R Block didn’t respond to a request for comment.
While the form is smaller, filers may not find it easier to navigate because many of the credits and deductions have been moved to other forms, said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center. That may not ultimately matter because most people use software to file and don’t use the paper form, he said.
“You still have to provide all the same information, you just have to provide it in different places,’’ Gleckman said. “The way TurboTax does it is they just ask you questions and you answer. Whether that information is on the 1040 or another schedule is of no interest to people.’’
House Ways and Means Chairman Kevin Brady said more people will be able to file using the standard deduction -- rather than itemizing credits and deductions -- because the standard deduction was doubled to $24,000 per couple. He spoke at an event Tuesday sponsored by the Washington Post.
Itemizers are typically eligible for big-ticket tax breaks, such as the mortgage interest deduction or the deduction for state and local taxes, both of which were limited under the tax law.
About 68.5 percent of people have claimed the standard deduction in recent years, according to the Tax Foundation. Brady, a Texas Republican, estimated the tax law change means about 90 percent of people will file using the simplified procedure.
“Whether you like this form or something else, the fact is that 31 million more Americans won’t have to itemize to be able to get their full tax cut,’’ Brady said. “They’ll be using the simplest form available.”
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