Tsaiberspace

Three three major tax software providers (well, the three that I know about) all offer desktop software (download or CD purchase) and online services of their products. For a package including one federal return and e-file, and one state return, all three encourage people to go online (or discourage people from staying at home, depending on how you look at things).

Note: This is not meant to be a price comparison between the three vendors; only a price comparison between each vendors’ individual products. The market being what it is, the bundling of services inevitably vary from vendor to vendor.

Buying a CD incurs material costs over downloading software, but why does downloading software cost more than using an online service? It costs money to maintain an online service, and it costs money to store your information from year to year.

To be sure, it is probably worth some money to know exactly how people are using the products (which forms are most popular, which interview questions seem to take the most time, etc.), for the purposes of improving the product and gaining an edge over the competition.

However, the tin-foil-hatted paranoid in me also knows that it is definitely worth a lot of money to know the tax situations of the people using the products. One needs only to consider the value of a list of e-mail addresses (or even physical addresses and social security numbers!) of people in some ZIP code who are married, self-employed, holding multiple pieces of property, with some specific number of children of a certain age, and earning above some certain amount of money (all inferred from information in the tax return).

Even if 2nd Story Software, Intuit, and H&R Block never sell or give out this information, what happens when the companies hit bad times and go belly up on the auction block? I’m sure this data would be worth a lot on its own, outside of the actual tax software and service products. And then there is always the risk of some kind of security breach like another stolen employee laptop, or hacked server, or whatever the breach du jour happens to be.

There is an older writeup of TaxACT here.

Update: the unstated but obvious fact is that using an “online” service for filing means that there is yet one more party storing your tax records, which is one more party able to lose/release your data.