is bolstering its electronic tax preparation offerings with the acquisition of Income Dynamics, maker of ItsDeductible. The all-stock transaction, worth about $10 million, closed on July 11.
Last year, TurboTax users were offered help figuring out how much they could deduct for all those stationary bikes, t-shirts and sweaters they donated to charity. The offer of aid came in the form of a pop-up within the popular tax preparation software that invited them to buy ItsDeductible. The $29.95 app contains a database of fair market values for everything from stock donations to merchandise to the miles driven to drop off a load at the thrift store.
Through an exclusive arrangement last year, ItsDeductible was available only through Intuit or Income Dynamics; Mountain View, Calif.-based Intuit received a share of the revenue from units it sold. The previous year, Income Dynamics had a similar exclusive relationship with tax preparation giant H&R Block.
“We felt that by acquiring them, we could more effectively build on the success of this partnership,” said Intuit spokesperson Julie Miller. “They had roughly 100,000 customers, and those people become our prospects.”
The IRS says that more than one-third of taxpayers itemized their deductions, and approximately 89 percent of that group makes charitable deductions. ItsDeductible will continue to be sold separately as an add-on to TurboTax 2003 products, according to Miller, available online and as a mail-in offer in shrink-wrapped software boxes.
Miller said Intuit has an ongoing strategy to build its consumer tax software business, creating special products for customer niches. TurboTax 2002 products targeted investors and people focused on retirement planning; a product for property owners is in the works for next year.
Intuit said it will also continue its participation in the IRS’ Free File Alliance, which lets low-income taxpayers looking for free tax preparation and free electronic filing pick from a list of vendors. Miller said TurboTax accounted for about 1 million of the 2.5 free million free income tax preparations produced for the 2002 tax season. She said TurboTax has offered such free use of its web-based tax preparation and filing applications to qualified users for five years. To qualify, taxpayers must have an annual adjusted gross income of $27,000 or less or be eligible for the earned income tax credit.
Unlike some tax software products, TurboTax provides free electronic filing of federal returns to all users, Miller said. TurboTax web users e-file both state and federal returns at no charge, while desktop users get a rebate offer for federal e-filing charges and pay to file state returns electronically. Last week, the IRS’ own consumer advocate criticized federal income tax organization for directing users seeking free e-filing to software vendors who bombarded them with sales pitches. Miller said all the tax preparation vendors involved are working with the government to define next year’s offerings.
Those talks won’t include the fair market value of that sweater; the government provides only vague guidance on whats reasonable for such charitable deductions, leaving plenty of room for ItsDeductible.
Miller also pointed out that federal e-filings are always free for TurboTax users.