TurboTax, which was released in 1984, is a tax preparation software that allows users to file their taxes online. Taxes can be filed on both a federal and state level.
TurboTax makes money by charging customers a yearly fee for access to its premium products as well as dedicated tax experts. The tool operates on a freemium model, meaning the majority of its features can be used at no cost.
What Is TurboTax?
TurboTax is a Software as a Service (SaaS) tool that allows users to file their taxes online. Users can file for tax returns in Canada and the United States.
It was created by Chipsoft in 1984, which was subsequently sold to financial software giant Intuit in 1993. Intuit spent a combined $225 million to acquire the company and its products.
TurboTax is part of Intuit’s Consumer Tax Group that is headquartered in San Diego, California (Intuit is based in Mountain View, California).
TurboTax offers a variety of tax filing products for employees, investors and rental property owners, freelancers and small business owners, or militaries enlisted on active duty.
Apart from its tax software, TurboTax also offers other free tools that aid users in the filing process. These include a tax calculator, tax reform resources, or tax tips and videos.
TurboTax can be accessed via CD ROM, its website, as well as mobile and tablet phone applications (available on Android and iOS). Using the CD ROM allows users to file their taxes offline while the apps and website require an internet connection.
How Does TurboTax Work?
Filing your taxes with TurboTax is a fairly simple process. In the first step, the user keys in his or her email. Afterward, they are asked to answer a short survey about their financial situation.
The survey results allow TurboTax to determine what of its products is best suited for the needs of the user.
Users don’t need to provide their W–2s or 1099 details in the survey. TurboTax is able to automatically import that information from over a million employers and financial institutions.
For more complex tax situations it is advisable to provide additional documentation such as mortgage statements or medical expenses.
The TurboTax software then automatically finds possibilities for tax deductions. It scouts its database for over 400 possible applicable credits and deductions (e.g. student loans or donations to charities).
Because TurboTax Online is hosted on the cloud, progress on the tax deduction will be synched across all registered devices.
If the software isn’t enough, then users have the option to consult a certified tax professional during any step of the process. These experts are vetted by TurboTax to ensure quality advice. If users want to save that money, they can simply ask for help in a dedicated forum section.
How Does TurboTax Make Money?
TurboTax makes money by charging a fee for premium versions of its tax clearing software as well as by offering help from dedicated tax experts.
TurboTax is built on a freemium model, meaning the majority of its product can be used at no cost. This has 2 underlying reasons behind it:
- To entice customers to opt into the premium version, for instance, because the free version does not entail features they might need
- To get customers acquainted with the platform so when their tax situation becomes more complex, they already have experience with using the software
Apart from its free tier, there are 3 premium versions available to purchase: Deluxe, Premier, and Self-Employed.
Customers pay a one-time fee to access any one of the 3 options. Prices range anywhere between $60 to $120. The fee is to be paid yearly, meaning customers will need to purchase the software again during next-years tax filing season.
The premium versions include advanced features such as the ability to deduct gains on property income, bonds and stocks, cryptocurrencies, as well as claim cost on things like donations.
Consequently, if customers need help from a dedicated expert, they can get it by hiring one of TurboTax’s dedicated tax professionals. Again, access to these experts is available within the 3 tiers that TurboTax offers.
Premium features include things like the ability to speak to a professional during the filing process, live guidance, and a final review of said filings.