How AI Affects Tax Preparation: Do’s and Do Not’s
Artificial Intelligence (AI) is changing the way we do common, everyday tasks. Given its growing popularity, some may be tempted to turn to AI for help with business or personal tax preparation. But doing so comes with substantial risks.
Tax laws change frequently and AI tools may not be current on the latest updates to the tax code. AI systems also lack the critical decision-making necessary to evaluate the benefits and drawbacks of specific tax filing choices. These systems can make mistakes or completely fail to account for unconventional tax scenarios. Additionally, the IRS has said it is closely monitoring and flagging tax returns that may have been prepared using AI. While AI systems can help with basic tax preparation tasks, they should not replace professional tax advice. For any tax situation involving significant financial decisions, unusual tax scenarios, or areas of uncertainty, taxpayers should seek advice from a qualified tax professional.
How AI Can Help with Tax Preparation
Artificial intelligence tools excel at automating routine tasks and providing quick responses to basic and frequently asked tax questions. When used wisely, they can save taxpayers time by automating workflows, particularly when filing individual returns or taxes for small-business owners.
Organizing Financial Documents
AI systems can scan receipts to categorize expenses and match transactions with specific accounts. This can save taxpayers time when closing out the year or preparing for an audit.
Completing Basic Tax Forms
Some platforms use AI systems to complete standard tax forms based on documents uploaded by the taxpayer, such as a W-2. But these systems are not foolproof, and taxpayers must confirm that the information entered is accurate.
Calculating Estimated Taxes
Sophisticated AI tools can analyze trends and predict earnings. These predictions can be used to calculate estimated taxes. Freelancers, gig workers, and small business owners can save time and money by using AI forecasting tools to calculate estimated earnings and set aside enough money to cover those estimated tax payments.
Identifying Potential Tax Deductions
Taxpayers can use AI tools to identify common deductions based on a taxpayer’s income, expenses, and industry. While these systems do not replace professional advice, they can be used to create a checklist of items to discuss with a qualified tax professional.
Answering IRS FAQs
Many AI systems pull answers directly from the IRS website to answer general questions about filing deadlines, deductions, or filing rules. These systems can replace a simple internet search, provide additional context in the response, and save taxpayers time by finding basic answers to common tax questions.
Where to Avoid Using AI for Tax Preparation
Despite the benefits and time savings that can be achieved using AI systems, there are significant drawbacks and limitations to using AI for tax preparation.
Do Not Trust AI to Apply to Tax Code Correctly
The tax code is incredibly complex and subject to numerous rules and exceptions that require human interpretation. AI systems frequently misunderstand or misinterpret these rules and fail to correctly apply them to an individual taxpayer’s situation.
AI Should Not Provide Tax Strategy
While AI systems can provide general answers to basic questions, they are not professional tax preparers. An AI system cannot account for a taxpayer’s individual situation or long-term financial goals, and cannot develop a comprehensive tax strategy to account for them.
Do Not Assume AI Tools Are Secure
Tax preparation requires a taxpayer to reveal certain sensitive financial information. Yet many AI systems do not guarantee security or confidentiality, and may even use sensitive financial information to improve the AI model. Taxpayers face an added risk of exposing sensitive tax information in the event of a security breach or other unauthorized access.
Do Not Use AI for Complex Tax Scenarios
AI systems are complex pattern prediction models that lack the capacity for professional judgment. They should not be relied upon for complex tax situations, such as when a taxpayer has multi-state income or when responding to an inquiry from the IRS.
Do Not File Business Taxes Without Human Oversight
Business taxation is more complicated than filing personal income tax and presents issues that are far beyond an AI system’s capabilities.
AI Cannot Replace Professional Tax Advice
When it comes to tax filing, there are few easy answers. AI systems cannot replace the informed and knowledgeable judgment of a tax professional. While you may consider using AI to gather information and automate basic calculations, these systems should not be relied upon for complex tax advice.
Contact Gudorf Tax Group Today
The experienced accounting and tax professionals at Gudorf Tax Group, LLC, help individuals, businesses, and families optimize their tax situation and increase yearly cash flow while avoiding costly tax disputes. Contact Gudorf Tax Group today to schedule an appointment to speak with our accounting and tax professionals.
