People are using artificial intelligence for just about everything these days, including tax prep. According to Salesforce, AI agents could save people up to 62% on tax filing time. While cutting your filing time in half sounds great, cutting the wrong corners could cost you money — or worse, leave you facing an audit.
Here’s a look at what you can use AI for and what you should leave to the tax professionals.
Where AI Can Help With Taxes
AI-powered tools are getting better at automating repetitive tasks and providing quick answers to common questions. If used wisely, they can simplify some tax prep workflows, especially if you are filing personal or small business taxes.
Here are some instances where you may be able to use AI.
Organizing Financial Documents
AI-powered software can automatically scan receipts and categorize expenses. It can also match transactions with specific accounts. This can save you a lot of time when closing out the year or prepping for an audit.
Helping Fill in Basic Tax Forms
Some platforms use AI to fill in standard IRS forms based on the documents you upload, such as W-2 forms. These tools aren’t always foolproof, though, and you should always confirm what they input. However, they are accurate enough to speed up tax prep for W-2 filers with straightforward returns.
Calculating Estimated Taxes
Sophisticated AI tools can analyze income trends and predict quarterly tax payments. If you are a freelancer, gig worker, or small business owner, AI-powered forecasting tools could help you avoid underpayment penalties and set aside enough cash for taxes.
Identifying Potential Deductions
AI algorithms can flag common deductions based on your income, expenses, and industry. While they don’t replace professional advice, you can use them to create a helpful checklist.
Tracking Down Answers to IRS FAQs
Many AI tax chatbots pull information from IRS.gov to answer general questions about deadlines, deductions, or filing rules. These bots help you avoid the hassle of tracking down the information yourself.
Where to Avoid Using AI for Tax Decisions
Despite these benefits, there are major limitations to AI that you should understand.
Do Not Trust AI to Apply the Tax Code Correctly
There are thousands of pages of rules, exceptions, and interpretations in the U.S. tax code. AI tools can misunderstand these rules and fail to apply them correctly to your personal or business tax situation. When you add state taxes to the mix, things get even messier.
Do Not Rely on Chatbots for Tax Strategy
Chatbots can answer general questions, but they’re not CPAs. They won’t know your business situation, retirement plans, or long-term financial goals. And they certainly won’t optimize around them.
Do Not Assume All AI Tools Are Secure
If you use an AI tool to help with your taxes, you may have to give it access to sensitive financial data. Not all of these tools are compliant with IRS security standards or have safeguards in place for data breaches. Before uploading anything, check the provider’s privacy policy and encryption protocols.
Do Not Use AI for Amended Returns or Complex Filings
If you’re filing an amended return, dealing with a multistate income situation, or responding to the IRS, skip the bots. These situations require direct communication with an experienced tax professional.
Do Not File Business Taxes Without Oversight
Even with the help of AI, filing business taxes requires professional review. Issues like depreciation schedules and shareholder distributions are far too complex for automated software to handle alone.
Tips for Using AI Safely During Tax Season
If you plan to incorporate artificial intelligence into your tax prep this season, make sure you:
- Choose a reputable platform
- Verify AI recommendations with a tax pro
- Be cautious about handing over your personal data
- Use AI to prep, but not to file
When in doubt, use AI to gather some preliminary information. Then, meet with a tax professional before filing with the IRS.
Don’t Overrely on AI — Turn to Trusted Tax Pros
At Zabel & Co., we have the expertise necessary to help you file your taxes accurately and properly apply state and federal tax codes. Our tax planning and preparation services can be tailored to individuals, businesses, and nonprofits.
If you’re thinking about using AI to manage parts of your taxes, or if you already have and want a second opinion, we can confirm that your forms are accurate and that you’ve taken full advantage of all opportunities to save money.
Schedule a consultation with our team today.