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Tax Preparers Start Using AI to Help You File Your Returns

But are you ready to trust an artificial intelligence bot to do your taxes?

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Photo collage: AARP; (Source: Dan Saelinger/Trunk Archive; Getty Images)

These days you have more options for preparing your taxes than filling out forms by hand.

  • Mail or upload records to your accountant and let a professional handle the details.
  • Deliver the paperwork and meet in person.
  • Put your financial information into tax software and file your own taxes — though you might have to summon a human expert along the way.

About 55 percent of people ages 50 to 64 and 59 percent of those 65 and older paid a tax preparer to file their most recent federal return, according to a 2021 IRS survey. A third of 18- to 24-year-olds did so.

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But in all, 53 percent of the adults surveyed paid a human tax preparer. Some of the reason is likely a confusing tax code.

Now some tax preparation companies are looking at another alternative: artificial intelligence (AI).

AI isn’t replacing your human tax expert

AI won’t replace a living, breathing certified public accountant (CPA) or tax attorney anytime soon. But even if it’s not this year, AI will increasingly play a role in the way many folks get their taxes done.

Already two of the largest tax prep companies, H&R Block and Intuit, have added generative AI into their products and services, both behind the scenes and in ways more visible to users. 

In simple terms, generative AIs can generate text, images and other content based on how they’re prompted by a user and the massive amounts of data they were trained on.

In fall 2023, Intuit, which produces the popular TurboTax do-it-yourself software, announced a generative AI financial assistant called Intuit Assist. It works across the company’s product lines, including TurboTax software and TurboTax Live.

H&R Block followed with its own AI-fueled offering. H&R Block AI Tax Assist is billed as a product designed to streamline tax preparation for individuals, the self-employed and small-business owners.

What tax questions can an AI answer?

Whether you’re doing your own taxes or relying on a CPA, numerous questions are likely to pop up in the weeks ahead of the April 15 tax deadline, especially if your return is complicated.

You may be asking: What itemized deductions can I take from my home office? How will the fact that I recently qualified for Social Security affect my return? What about the income I made from a side job or rental property? How do I deal with a larger-than-expected cash windfall I received this year? Why did I get a 1099-K?

AIs are designed to reliably tackle these types of queries. In general, they can play a larger role in helping you file your own taxes or helping the professionals who help you.

When you need it, human assistance is generally a click away.

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Reasons to be wary of AI tax prep

It is worth noting that other tax preparers are treading more cautiously when it comes to AI, including the AARP Foundation Tax-Aide program, which has helped more than 75 million taxpayers fill out their returns for free since 1968. The program is not using AI for tax prep.

Meanwhile, for a gaggle of reasons, taxpayers should not seek tax advice from Google Gemini, formerly Bard; Microsoft Bing/Copilot; or OpenAI’s ChatGPT.

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Such AI bots may spit out information that sounds plausible but is out of date, inaccurate or made up — wrong advice commonly known as hallucinations. You wouldn’t want an AI to go off the rails and fabricate an extra dependent or give filing instructions that no longer apply.

Even if you’re confident in the answers, sharing private information — financial or otherwise — with an AI isn’t a swell idea.

When you train a bot with your own data, that information could be exposed or leaked in the future, at least without proper guardrails.

AI can personalize responses

The generative AI Intuit Assist feature in TurboTax starts with an accuracy check. The AI searches a customer’s return in real time to surface potential problems that may need to be addressed before the taxpayer moves to the next step. For example, it may flag a missing lender name for a mortgage.

“It’s just a very targeted question to get them back on track,” says Jamie Belsky, vice president of product management at the Mountain View, California–based company.

AI Intuit Assist can also help personalize responses, perhaps by breaking down the sum TurboTax says you owe Uncle Sam or will get in a refund. You might see an explanation along these lines: “As part of your itemized deductions, you are eligible for homeowner tax breaks. Specifically, you are able to deduct $6,771 for mortgage interest.”

Along the way, you can click prompts or type in questions: “What tax breaks am I getting?” or “How can I owe less next year?” If things get too complicated, you can reach out to a human expert.

Intuit Assist also better tailors the answers you’ll get from the self-help digital assistant that has been a part of TurboTax for several years, Belsky says. Deeper explanations are culled from Intuit’s proprietary large language model (LLM), a database trained by tax professionals.   

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What generative AI doesn’t do well yet is math, he says. So Intuit is not using the AI for calculations, in part to avoid those hallucinations.

It’s one thing when a hallucination is kind of funny, Belsky says. “It’s another thing when it’s about your biggest paycheck of the year.”

Consumers can get vetted answers

The AI Tax Assist feature H&R Block has started to deploy this tax season is available to customers of the company’s $35 deluxe package as well as its more expensive online packages.

The Kansas City, Missouri, company is partnering with Microsoft and leveraging Microsoft Azure OpenAI generative AI technology. Microsoft is a leading investor in OpenAI, the company behind ChatGPT.

AI Tax Assist differs from doing a standard Google search on your taxes, says Aditya Thadani, who heads the AI Platforms team at H&R Block.

“You are getting a response that has been vetted [and is] based on content curated by [tax] professionals,” he says. “This is about answering your question rather than just giving you access to an article.”

He is mindful of guardrails around privacy.

“We are seeing a lot of personal private information as we interact with clients,” Thadani says. “As much as we want to use that to answer questions effectively and give the best guidance, we have to find that balance: How do we make sure we respect that privacy, honor that trust, and put it to use responsibly?”

A future in which you might snap a picture of all your tax data and then have an AI digest the numbers and send your return to federal and state tax agencies is still a long way off. Today’s AIs tell you how to do your taxes rather than take the reins for you.

And don’t blame the AI if the IRS audits you. Any decisions remain in your hands. “The AI made me do it” is the rough equivalent of “the dog ate my homework.”

But maybe the feds will be more understanding. The IRS has started using AI to crack down on tax cheats.

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