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Business Operations Business Models

How Does TurboTax Make Money (Business and Revenue Model)

The TurboTax business model

How Does TurboTax Make Money?
Here’s what you should know:
  • What is TurboTax, and how does it work?
  • How does TurboTax make money?
  • Pay For The Software (Do It Yourself)
  • Assisted Tax Help (TurboTax Live)
  • Full Service (TurboTax Live)
  • IRS Free File Program
  • TaxAudit Partnership
  • What is the TurboTax business and revenue model?
  • TurboTax’s profit and revenue
  • TurboTax’s funding and valuation

How does TurboTax make money? Well, here is a full, in-depth, breakdown of their three (3) revenue streams and the different products and services they offer, as well as the TurboTax business model, their year-over-year revenue, and how TurboTax works.

What is TurboTax, and how does it work?

TurboTax, also known as Intuit TurboTax, is an American tax preparing software for filing federal and state taxes electronically.

Since being developed in 1984 by Michael A. Chipman, TurboTax was purchased by Intuit through a ChipSoft acquisition in 1993 for $225 million. Since then, TurboTax has gone on to become one of Intuits most profitable acquisitions.

How does TurboTax make money?

According to the IRS, “Nearly 184.6 million returns and other forms were filed electronically” in 2019. This number represents 72.9 percent of all filings. Of that, roughly 40 million of them did so using TurboTax.

So how much money does TurboTax make off of those 40 million tax filers using their software and services?

Below is a breakdown of how much money TurboTax makes and its revenue model. Including all their revenue streams and how much money they make off each service.

Here are the 3 ways of how TurboTax makes money (in 2021):

TurboTax generates revenue for the company in three (3) ways. Making all of their money through providing tax services, but they offer different service types to fit your taxing needs.

The TurboTax business model is a combination of an A la carte service, Infrastructure as a service (IaaS), and Fee for service (FFS). Meaning they provide the tools and help (aka the tax forms and accountants), and the filer picks and chooses what best fits their needs of services to add on or not use.

How Does TurboTax Make Money? | Fee for service (FFS) business model
Source: TurboTax

#1. Pay For The Software (Do It Yourself)

TurboTax offers a “Do It Yourself” option for tax filers who don’t want the help of a professional assisting or doing it for them.

This is the cheapest service TurboTax offers – which also includes a freemium version for tax filers submitting, what TurboTax calls, “simple tax returns” only. But, if you want to write off deductions, have rental property, or self employment income – those forms cost extra.

According to the TurboTax website, “more than 13 million people filed 100% free with TurboTax Free Edition last year.”

TurboTax “Do It Yourself” Cost:

  • Free Edition: Free
  • Deluxe: $60
  • Premier: $90
  • Self-Employed: $120
TurboTax | A la carte business model
Source: TurboTax

Note: This “Do It Yourself” service is an example of, both, a freemium business model and A la carte business model.

#2. Assisted Tax Help (TurboTax Live)

The next option tax filers have when filing through TurboTax, is using their TurboTax Live service. Customers can hire a professional CPA on TurboTax to help assist them while still doing their own taxes.

“TurboTax Live customers grew nearly 70 percent” in the 2020 fiscal year, according to Intuit.

TurboTax Live Expert Help Cost:

  • Basic: $80
  • Deluxe: $120
  • Premier: $170
  • Self-Employed: $200

#3. Full Service (TurboTax Live)

The most expensive tax filing service TurboTax offers is its Full Service. Customers can hire a professional CPA on TurboTax to do your taxes for you.

TurboTax Live Full Service Cost:

  • Basic: $130
  • Deluxe: $200
  • Premier: $260
  • Self-Employed: $290

IRS Free File Program

TurboTax also offers an IRS Free File Program that is 100% free for filers who answer ‘yes’ to any of the following:

  1. Had an adjusted gross income (AGI) of $39,000 or less

  2. Was active duty military in 2020 with an adjusted gross income (AGI) of $72,000 or less

  3. Qualify for the Earned Income Tax Credit (EIC)

It’s reported that more than 14 million Americans, in 2020, paid for tax prep services, like TurboTax and others, who were eligible to file for free through the IRS Free File Program. Also noting that “Tax software companies made around $1 billion in revenue by charging people who were eligible to file for free.”

IRS Free File Program | File Taxes For Free
Source: TurboTax

TaxAudit Partnership

Since 1999, TaxAudit has exclusively partnered with TurboTax to handle TurboTax Audit Defense. For a price, TaxAudit will monitor and handle any tax audits that come the taxpayer’s way – including by referral of TurboTax customers.*

TaxAudit prepaid audit defense membership Cost:

  • Basic: $49.99 for each individually filed tax return

Note: *It’s unclear what the terms of their partnership are.

What is the TurboTax business and revenue model?

TurboTax makes money through a few revenue models that they combine within their company, they are:

  • Fee for service (FFS) business model
  • Infrastructure as a service (IaaS) business model
  • A la carte business model
  • Freemium (upselling) business model
  • B2B2C (partnerships) business model

TurboTax’s profit and revenue

The profit and revenue of TurboTax are not made public as a subsidiary of Intuit. However, you can view Intuit’s profit and revenue here.

Note: Because Intuit Inc., parent company to TurboTax, is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Intuit’s publicly released financial reports through Intuit’s 10-K Annual Report investors section on their website.

TurboTax’s funding and valuation

Leading up to the 9 years before Intuit purchased TurboTax in a ChipSoft acquisition for $225 million in 1993, ChipSoft funding is unknown.