Tax Analysis

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Recommended: Discussion of porter's five forces

The underlying drivers of Porter’s Five forces are the root causes of profitability within the tax software industry, however; particular drivers in each force make the industry unique. Two barriers to entry, economies of scale and government policies, generate the majority of profitability in the industry. Firms with the largest market share have little unit cost after software development and implementation. These large economies of scale decrease unit costs for a firm, and increase start-up costs for entrants. Firms that have electronic servers of scale limit the ability for entrants to compete, as the costs to create and maintain nationwide servers are exorbitant. In addition, the changing governmental policies and initiatives for e-filing also increases barrier to entry. In recent years the IRS has eased the ability for residents to e-file, causing an annual increase of 6% in e-files over the last few years.[11] Additionally, companies that can access IRS servers, create software that incorporates the complexities of the IRS code, and produce software that updates annually, sustain a competitive advantage over new entrants. Concurrently, suppliers of computing and programming threaten forward integration due to the small size of software development projects compared to a firms overall business. Suppliers create the necessary technology to process tax returns making forward integration relatively cheap. Forward integration also provides additional revenue streams, such as when Intuit purchased TurboTax and Lacrete to increase Intuits product differentiation. [12] Conversely, buyer power is minimal. Buyers that integrate backwards and consume tax software companies do not profit directly because tax filing is a periodi...

... middle of paper ...

... risks added to GD’s line of business is its ability to forecast pricing to cover costs, its foreign contracts are subject to sovereign risk, R&D expenditures may not result in profits, and margins are considerably leveraged on the cost of materials.

As with all industries and audits there is audit risk and inherent risks, although GD has potential risks, these risks seem to be mitigated due to GD’s industry performance.

Works Cited

[11] More taxpayers filing online. La Voz. Mar 22 2011. more-taxpayers-are-filing-from-home> [12] A clear look at tax software. CPA Journal Online. Mar 22 2011. cpajournal/ 2008/508/infocus/p20.htm>

[13] Young, Anthony. It’s tax day: H&R Block vs. TurboTax. Media Works.com Mar 22 2011

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