By Ian Salisbury

Doing your taxes is frustrating. Doing taxes for others has always been a great business.

Take a look at H&R Block stock. The company prepares taxes for 15 million American households through its website and nearly 9,000 company-owned and franchised offices that dot Main Streets across the country.

The stock boasts a dividend yield of about 5.2%, while analysts expect earnings to grow about 7% in 2026 and 12% in 2027. The dividend looks solid, too, consuming only about a third of H&R Block's annual profit.

What's the catch? Shares are down about 40% over the past year, as investors worry about the long-term health of the tax-prep business. One fear has been the IRS Direct File program, which would let taxpayers file for free directly with the government. The other is the rise of AI, which promises to disrupt all kinds of software businesses.

It's worth noting that H&R Block's main rival, TurboTax parent Intuit, has also seen shares slide about 25% over the past year. Both stocks took a big hit in February, when excitement around Anthropic's Claude model set off what's become known as the SAASpocalypse, sending software shares down almost across the board. For better or worse, Intuit is far more diversified than H&R Block. TurboTax and its professional tax software offerings represent only about 20% of overall revenue, compared with more than 80% for H&R Block.

While worries about the tax prep business's long-term viability are real, there's reason to believe investors may be overreacting. Consumer advocates have been calling for something similar to IRS Direct File for decades, pointing with exasperation to supposedly forward-thinking European countries like the Netherlands, where tax filing is automatic and painless.

Despite all the advantages, the Trump administration killed the plan in November, in favor of a different program that gives taxpayers access to free products from private tax preparers for those with simple returns. Public interest groups cried foul, citing the millions of dollars spent by industry lobbyists. But the project faced ideological opposition too. "The costly and ineffective government-run Direct File tax program...would have made the IRS the tax preparer, filer, and auditor for Americans," said Rep. Jason Smith (R., Mo.), chairman of the House Ways and Means Committee.

Given the tax prep industry has survived this far into the computer age, it isn't at all obvious the AI revolution will be what finally kills it either. Earlier generations of technology were perfectly capable of handling Americans' taxes. Yet the tax-prep industry has always managed to adapt to and incorporate them rather than be replaced. While it's certainly possible this time could be different, when politics enter the mix, obvious-seeming business logic has a way of going pear-shaped. Just look at how long it took to finally kill off the penny.

At least so far, AI seems to be boosting, not hurting, H&R Block's bottom line. Following last year's tax season, H&R Block said AI Tax Assist, its AI tool for DIY tax filers, increased the conversion rate among new clients by 13 percentage points. Its DIY revenue rose 10% to $383 million, while the firm's overall revenue rose 4% to $3.8 billion.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 06, 2026 17:09 ET (21:09 GMT)

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