February 3rd, 2025
The role of artificial intelligence (AI) in the tax industry is becoming more prominent. Just a few decades ago, pre-1990, returns were still manually created and mailed to the IRS. Today, most steps in the tax return preparation process can be automated, from collecting client data to processing returns and responding to IRS inquiries.
A recent study by Thomson Reuters found that 8% of accounting firms already use AI technology, with another 13% planning to adopt AI resources. Even more surprising, 30% of respondents are considering whether to use AI in their practices. Similarly, one of the poll questions we asked attendees of Fall Tax School was whether they had used any AI tools in their tax practice. Nearly 25% answered yes, with another 14% saying no but they planned to. For tax practitioners leaning toward AI implementation, there are countless considerations to keep in mind.
In this article, we’ll cover five important considerations for tax practitioners when implementing AI into their workflows.
The process of implementing AI into a tax practice begins with understanding the current pain points. Make a list of the tasks that can benefit from AI. These will be tasks that are mundane, repetitive, or take hours to complete. Common pain points of tax practices include sifting through client-provided information, managing the flow of returns from one staff member to the next, or completing tax research.
Understanding these pain points gives tax practitioners the ability to find the right AI tools. For example, if a tax practice has bottlenecks in tax return entry, a tool that scans and uploads documents into tax software might be beneficial. Not only can implementing the wrong AI tools be time-intensive, but they can also be costly.
The use of AI draws in legal and ethical implications. As tax practitioners facilitate workflows using AI, high levels of sensitive client data will be transmitted. Tax practitioners have a responsibility to ensure that their systems and protocols adequately protect against cyber threats. Firm data must remain confidential, secure, and encrypted.
Ethical implications are another important aspect of AI implementation. Tax practitioners must establish clear guidelines and processes for overcoming ethical dilemmas, including infusing transparency into the AI decision-making process and taking accountability for any overlooked mistakes.
Bad data in equals bad data out. AI technology relies on high-quality data to populate accurate results. For example, if a client sends a picture of a W-2 instead of a scanned copy, there is a higher likelihood that the AI tool will misread the data. When implementing AI into a tax practice, a robust data management system is necessary.
This data management system should have the ability to collect, save, and analyze data. Quality data not only saves tax practitioners time in the review process but also helps AI algorithms refine their offerings over time.
Nearly all tax practitioners actively work to build relationships with their clients. In fact, building relationships is one of the most important factors in retaining clients, generating a strong brand image, and growing a tax practice. While AI can be powerful when it comes to overhauling inefficiencies in your workflow, nurturing interpersonal relationships with clients still remains paramount.
For example, tax practitioners who utilize an AI program to send finalized returns to clients can benefit from following up with a phone call. Fluid and personal communication with clients lowers turnover, improves loyalty, and ensures client expectations are met.
AI can be a great tool to increase efficiency, accuracy, and productivity in tax practices; however, it shouldn’t be relied on as a single source of truth. For example, leveraging tools that scan and upload tax information into preparation software frequently generates mistakes. From reading incorrect numbers and payer codes to uploading duplicate information and defaulting data to incorrect forms, human oversight is non-negotiable with AI.
While tax practices will unlock more time to focus on high-value tasks, it’s important to maintain human oversight to avoid added liability and maximize compliance with regulatory requirements. Clients expect reliable and comprehensive advice and services. AI can be a great tool to improve tax workflow, but it isn’t a substitute for human oversight and expertise.
The adoption of artificial intelligence in the accounting and tax industry has been steadily increasing over the past few years. The ability to eliminate mundane tasks, minimize errors, and free up time to focus on other high-value tasks are a few of the reasons why tax practices are venturing into the AI realm.
There’s no one-size-fits-all approach for tax practitioners pursuing AI in their practices. However, keeping these five considerations in mind is a great starting point. The ability to adjust and overcome challenges will be crucial to bolstering the long-term benefits of AI in the tax industry.
We asked the AI platform Microsoft Copilot for a list of specific AI tools tax practitioners could use to aid in their tax practice. Below is the list it provided. Please note: we have not personally tried these and cannot vouch for their reliability, accuracy, price, or data security practices. Do not consider the below list an endorsement but rather a starting point in doing research for AI tools that could assist you.
By Rachel Szeklinski, CPA
Sources
IRS Fact Sheet 2011-10 | Internal Revenue Service (irs.gov)
How do different accounting firms use AI? | Thomson Reuters (tax.thomsonreuters.com)
Disclaimer: The information referenced in Tax School’s blog is accurate at the date of publication. You may contact taxschool@illinois.edu if you have more up-to-date, supported information and we will create an addendum.
University of Illinois Tax School is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. This blog and the information contained herein does not constitute tax client advice.
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