Artificial intelligence (AI) technology is having a significant impact on the business sector in many ways, including business tax preparation and filing. Currently, the Internal Revenue Service (IRS) evaluates the potential applications of AI in tax administration, considering how to minimize the associated risks.
This technology could make tax filing easier for businesses and streamline tax administration, reducing wait times and potentially making services more efficient. However, using AI for business tax filings is not without limitations and concerns and still requires human expertise and oversight.
Important points
- Artificial intelligence (AI) has a huge potential impact on streamlining a company's tax preparation process, helping ensure tax compliance and identifying potential tax risks and errors.
- AI can help improve the accuracy and efficiency of business tax filings when it comes to classification and data processing.
- AI’s ability to analyze and interpret complex business tax scenarios is limited, so human oversight and expertise remain critical in the tax preparation and filing process.
- There are several different tax preparation software options on the market that incorporate AI, and more startups and solutions continue to be developed.
How can AI help with tax preparation and filing?
AI-powered call bots and online chatbots, like those used by the IRS and H&R Block, can help corporate taxpayers with frequently asked questions and other routine questions when preparing their taxes, reducing wait times. We promise to shorten your time and free up human resources. We handle more complex cases and facilitate 24/7 service.
Artificial intelligence automation reduces the time it takes for taxpayers to receive their returns. In October 2022, the IRS introduced a new AI-powered process to digitize and speed up the processing of paper tax returns and address the massive backlog caused by the pandemic.
AI-based tax preparation software
Many tax software products also incorporate AI to streamline the tax preparation process for business taxpayers. However, due to the complex nature of business taxes and the relatively recent introduction of AI into tax software, most tax software currently available does not use AI to perform tax calculations. Instead, tax software companies have chosen to incorporate AI as a virtual assistant or implement it into specific applications within their software.
This is the case with Intuit Assist, the AI assistant built into certain TurboTax and Quickbooks software packages, as well as H&R Block's AI Tax Assist. As well as Reconcile, a software offering a range of AI-powered tools to help entrepreneurs and individuals managing multiple sources of income, and FlyFin, a tax preparation product for self-employed people and business owners.
One exception is AiTax, which claims to use AI and machine learning technology to prepare and file taxes, eliminating “the risk of human error and missed opportunities.” However, it also guarantees that all applications are “backed by free audits and court defense.”
| AI business tax software | |||
|---|---|---|---|
| software | Plans and fees | Ideal for these people | overview |
| Intuit Assist | Varies by software and price package | Self-employed and small business owners | AI Assistant is included with some TurboTax and QuickBooks plans |
| H&R Block AI Tax Assist | Included in Deluxe Online Packages of $55+ | Self-employed and small business owners | AI assistant that supports tax preparation in real time 24 hours a day, 365 days a year |
| reconcile | Pricing information available when signing up | Entrepreneurs and individuals managing multiple income streams | AI tax assistant, automated bookkeeping, and AI-powered financial analysis |
| fly fins | Pricing information available in the app | Freelance, self-employed, sole proprietor | Investigation and tax filing by AI-powered tax tools and certified public accountants |
| AiTax | Please contact our sales team for pricing information. | Self-employed and small business owners | AI-powered tax preparation and filing |
AI and tax compliance
AI can also help businesses ensure tax compliance and pay taxes on time through AI-driven analytics and automatic transaction classification. Software like TaxJar helps small and medium-sized e-commerce businesses manage sales tax compliance across jurisdictions by automatically calculating sales tax rates, classifying products, and filing in multiple states. It is intended to. It can also be integrated with various e-commerce and enterprise resource planning (ERP) platforms.
Because AI can process and analyze vast amounts of data, it can also track changing regulatory and tax requirements to ensure businesses remain compliant.
Advantages and limitations of AI in business tax
AI can improve companies’ tax preparation and filing processes in several ways.
- Data rationalization: AI-powered business tax software tools can import and analyze financial and sales data from other sources such as customer relationship management (CRM), ERP, and e-commerce platforms.
- Improved accuracy: AI can keep up to date with regulatory changes and is a useful tool for checking regulatory compliance in relevant jurisdictions, as well as checking the filing year of things like sales tax and specific tax provisions. .
- operating efficiency: Automate organizational tasks like data entry and expense and revenue categorization with AI to save your business time.
However, there are some potential issues and concerns with AI technology that indicate that taxpayers should not rely solely on AI to prepare and file their taxes.
- Possibility of presenting false information: AI has been shown to generate errors and present meaningless information (referred to as AI hallucinations), which can have a significant impact on business tax filings.
- Limited ability to analyze and interpret: Generative AI models are limited in their ability to analyze tax laws and interpret the context and relationships between tax code sections that may override each other. Therefore, there is no substitute for consulting a trained tax professional, especially when a company is dealing with a complex tax situation.
The future of AI in business tax
As AI technology continues to develop and advance, several trends are emerging in AI-powered business tax applications.
A growing number of tax authorities are using AI virtual assistants to reduce customer inquiries and free up human agents to focus on more complex cases. However, there is a lot of room for improvement, as many AI tools currently produce inaccurate or irrelevant answers to simple tax questions.
There is also a growing number of AI startups looking to leverage AI for business tax preparation. One example is april, a company that provides embeddable tax preparation software for the fintech, financial services, and employee benefits industries.
The potential impact of AI on the future of business tax preparation and filing is very promising. The Taxpayer Advocate Service (TAS) found that while the average small business spent approximately 82 hours and $2,900 on tax compliance in fiscal year 2022, U.S. businesses spent a cumulative 1.14 billion hours and $2,900 on tax preparation. We estimate that we spent $48.3 billion. As such, the increased accuracy and efficiency brought about by AI will have a significant impact on companies' daily operations and budgets.
What are the benefits of AI-based tax software compared to regular tax software?
AI promises benefits such as increasing the efficiency and accuracy of tax filings and streamlining the processing of financial and sales data. However, as the introduction of AI into tax software is relatively recent and still ongoing, we recommend that you maintain an element of human oversight in your tax preparation and consult a professional when necessary. To do.
What are the most popular AI-based tax preparation software?
Popular tax preparation software tools like TurboTax and H&R Block have introduced AI assistants in some of their packages. Other business tax preparation software tools include Reconcile, FlyFin, and AiTax.
How will AI impact tax professionals?
AI bots can answer common taxpayer questions, and generative AI tools built into tax software can help taxpayers stay on top of changing regulations and remain compliant. AI-driven automation streamlines the extraction, entry, and classification of financial and sales data.
Will AI replace accountants?
A 2023 survey of tax and accounting professionals found that while ChatGPT may be useful for basic research use, it cannot replace the judgment of experienced professionals needed to interpret complex tax scenarios. It became clear that this was insufficient. Meanwhile, a 2024 journalistic review of TurboTax and H&R Block's AI tools found that they often gave incorrect or irrelevant answers to basic tax questions.
conclusion
As more AI startups enter the tax software space and AI technology continues to evolve, taxpayers and tax authorities alike can take advantage of the efficiency gains, data analytics capabilities, and automated workflows that AI offers. will do. Even the IRS is turning to AI to identify “compliance threats” and reduce the number of unnecessary audits.
Although AI has been implemented in several tax software products and offers promising applications for business taxes, the nature of tax preparation and filing remains complex enough to preclude human oversight and interpretation. Is required.
