AI Can Now Handle Your Taxes: Is It the Right Choice for You?

Executive Summary

AI tax preparation tends to work best if your return is low to moderate complexity and your records are clean. Today's AI tools still fall short when your taxes involve complex business ownership, multi-state filings, foreign income and other situations that may require judgement calls. There are also important privacy and data security issues to consider when using AI tools for tax filing preparation. Not long ago, doing your taxes with artificial intelligence meant chatting with a bot while you manually entered numbers into boxes. Today’s AI-powered tax tools deliver much more, allowing you to upload your forms, answer questions conversationally and complete your taxes from start to finish. While it has many advantages, you’re entrusting quite a bit of information to the process. Your tax return is a legal document filed under your name that represents your entire financial life. If you’re handing that over to AI, you need to carefully consider the risks. Tax software used to be mostly rules-based. You input X, and the software applied rule Y. AI now enables tools to add additional insight by reading and understanding documents, explaining jargon in plain language and identifying patterns that appear suspect before filing. Examples of AI features in tax software include: Data extraction: Upload a W-2, 1099s or scans of receipts, and let the software identify and categorize relevant data for you. Some can even itemize expenses for business owners or independent contractors. Conversational questions: “Did you contribute to a retirement account this year?” appears instead of digging for Line 12b. The software then places the info where it needs to go. Automated review: The software points out discrepancies, missing documents and duplicate entries.