TurboTax and H&R Block Saw Free Tax Filing as a Threat

https://www.irs.gov/pub/irs-pdf/p17.pdf

I helped my brother in law file for an extension through the IRS web site. The IRS directed us to private companies including TurboTax to file the extension. We clicked on the free TurboTax link which nowhere had an ability to file for an extension!

I finally told my brother in law to print the extension form and mail it to the IRS.

The IRS should not include a link to something that doesn't exist.

Yikes!

I think you are underestimating by a long shot. Let's say that you forgo any UI and just make a command line tool that only developers use. And let's assume that you don't have tests, don't have any bugs, no any significant things that trip you up. To get something useful, you would need to:

1) Get a basic tool that handles the federal tax calculations for standard W2 income for single people and people filing as married couples

2) Handle common deductions and credits that are applicable without itemizing, such as child tax credits, Healthcare Savings account contributions, IRA contributions, self-employment deductions, alimony payments, educational costs for certain people, business expenses. Keep in mind that each of these has its own rules.

3) Handle multiple forms of income beyond W2, such as capital gains from investments (which are treated differently for people with different incomes and for short vs long term gains), income from dividends, bank accounts, gambling, etc.

4) OK, that's the easy stuff. Now, implement rules for handling state taxes. 50 different states + DC with 50+1 different sets of rules [0].

5) OK, so now, maybe you have something basic working, but if you want to be even a somewhat complete solution, you need to handle cases where people itemize instead of taking the standard deduction. And everything that can be itemized has it's own set of rules.

6) To be useful for anyone except yourself, you'll need documentation, because a lot of these things need some explanation unless you are a tax expert.

Oh, and here's the big thing. The rules can change every year. And they can change in every state and you need to keep it up-to-date. Having out-of-date tax software is worse than having no software at all.

So this is definitely more than a weekend project, even if you only want to handle a portion of the above. This is why so many people use Turbotax [1].

[0] And because you can deduct a portion of your state taxes from your federal if you itemize, you really can't offer JUST federal and call yourself a complete product.

[1] And even Turbotax doesn't do a great job if you are itemizing or have complicated business expenses. For example, say you work for yourself at a home office. Can you deduct your office? What if you have someone clean your house weekly and they also do your office? Your cellphone bill? What percentage of their work can you deduct? What if you didn't keep close track of some expenses or paid them in cash? What if you made a donation to your local church and got your business listed in their calendar... can that be deducted as a marketing expense? A lot of these things are very hard to automate and a good accountant will help you make a judgement call. Even if you are completely honest, there are some things that aren't black and white. Like how do you value items that you donated to a local thrift shop? Even if your goods were worth X, an accountant may not want to put the full amount down if it increases your risk of being audited.