Questions: Are we talking about the numbers of $ ?

Assumption: Only consumer/personal Income Tax and not Corporations, SME, etc.

All filing by themselves and not through agents etc.

 

Formulae:

 

1. Generic formulae: (# of entities (single & families) filing taxes * price of the tax software)
2. # of entities — split into 1. heavy users 2. normal users
3. Price for normal users, price for heavy users

 

Step 1:

 

Assumption:

Population : 320 million (including visitors, students studying etc.)

Life expectancy: 0-80 years

Equal distribution of age vs population

Ages between 0-20 (approximation) filed by household/adult – 80 million out of the 320 million

 

Remaining population:  240 million

Out of the 240 million – 200 million would be part of the family (M, F + 80 million of the kids etc.)

 

Out of the 200 million – 50% assumed to be single earning family = .50 * 200 = 100 million part of families

These (100 * .5 = 50 ) 50 million will file just one application – filing jointly assumed

 

Remaining 100 million dual income and 50% of them filing jointly and rest individually with the dependents being tagged to one of the filers = 100 * .50 = 50 million joint = 50/2 = 25 million applications  and 50 million individual

 

Total filing entities = 50 million (single earners) 1 application + 25 million 1 application (dual earners) + 50 million

 

Step 2:

Out of the 50 million single earners, assumption is stock sales, house sales and itemized deduction is used by 60% and 40% simple

 

Itemized = 50 * .60 = 30.0  (They are trying to maximize their income, sold stocks etc.)

Simple = 20 (haven’t sold anything in a year or distribution is such)

 

Dual  families

 

Itemized = 25 * .80 (80 % itemized) = 20 (based on income level, some require itemized deductions)

Simple = 5

 

Single

 

Itemized = 50 * .40 = 20 (young, less interest in income expansion)

Simple = 30

 

Price

Simple = $50 per application/login

Itemized = $100 / login/application

 

Single earners

Itemized = 30 * 100 = 3,000 ==> 3 Billion

Simple = 20 * 50 = 1,000 ===> 1 Billion

Total = 4 Billion

 

Dual families

Itemized = 20 * 100 = 2,000 ===> 2 Billion

Simple = 5 * 50 = 250 ===> .25 billion

Total = 2.25 Billion

 

Single

Itemized =  20 * 100 = 2,000 ===> 2 Billion

Simple = 30 * 50 = 1,500 ===> 1.5 Billion

Total = 3.5 Billion

 

Cumulative = 9.75 Billion

What is the market for income tax software in the US

 

Clarifying Questions

By market do you mean potential users or market size in dollars?  I’ll assume $ – we will get to potential users along the way.

 

Tax software – can I assume this id personal and not business?  I hope so – or this just way hard.

 

Tax software can I assume you means software like turbo tax not accounting software like quicken?  Yes

 

Base formula

Population -> Households -> minus those that don’t pay tax -> minus those that use an accountant -> minus those that use a free service – > minus those that self file -> multiplied by average cost of the software.

 

Population of US 330,000,000

Households 330,000,000 /2.5 = 132,000,000 households

68% of a population falls within one standard deviation

Top 16% 21,120,000 – much more likely to use an accountant – continuing down the path of using empirical rule lets say that only those outside of one standard deviation use tax software and only on one side.  So 16% of this population 3,379,200

Middle 16% 89,760,000  I’m going to use 1 side of a standard deviation 34% use tax software the rest will self file, use an accountant, use free filing software, or not pay taxes.  30,518,400

Bottom 16% 21,120,000 – much more likely to not file, self-file,  or use a free service. Again, lets say only 16% use tax software 3,379,200

 

Tax software costs 40 at a base and goes upto 100 for the advanced versions.  As we get the pricing point  I remember that there is a surcharge for  state taxes.  – should I include the state filing or not – sorry for the late clarifying question.  I’m going to use 20 bucks as a surcharge and assume that most people do both.  I’ll use something like 80% to account for those that don’t and those that live in tax free states.   I’ll just crunch both

 

At the top end I’ll assume that 90% of those users use the expense version.  So

(3,379,200*.9)*100 =304,128,100

(3,379,200*.1)*40= 13,516,800

 

In the middle I’m going to assume a 50% split on the cheap vs expensive version

15,259,200 *40 = 610,368,000

15,259,200*100 = 1,525920,000

 

At the bottom I’m going assume the reverse of the top so 90% use the cheap version

(3,379,200*.9)*40= 121,651,200

(3,379,200*.1)*100= 33,792,000

 

Total Users = 37,276,800

Total Federal dollar 2,475,559,680

Total state dollars = 37,276,800*.8*20 = 596,428,800

Total dollars = 3 billion and change. (3,071,988,480)

 

Actual is 3.7 billion according to IBIS World