AI has proved invaluable to the business and financial technology sectors as an accurate, reliable tool. Naturally, it has made its way into tax preparation and auditing — and is reshaping long-held standards. Will it permanently transform business tax planning?

The Impact of AI on Business Tax Planning and Audits

AI is quickly becoming a staple in most industries, so its introduction into tax planning and auditing should be no surprise. In fact, 26% of tax professionals are considering integrating generative models into their operations. Tax preparers are leveraging natural language processing (NLP) and machine learning algorithms to support their work and free up their time.

Where a tax preparer may take hours looking over someone’s financial records, a machine learning algorithm can analyze tremendous amounts of data in minutes. This unparalleled speed helps professionals prioritize complex returns. 

When combined with an NLP algorithm, a machine learning model can analyze a person’s financial data to determine whether or not they qualify for certain credits, deductions and exemptions, reducing their tax liability. Since traditional methods are time-consuming and complex, this capability is particularly transformative.

When an AI pours through financial records, it can uncover minor inconsistencies and discrepancies that indicate fraud, non-compliance or human error. Auditors will benefit from teaching their algorithms to flag suspicious activity and questionable transactions. 

While most of AI’s transformative impact on business tax planning and audits revolves around the value it generates for clients, it can also benefit organizations. Algorithms can automate repetitive tasks and streamline workflows to minimize internal inefficiencies.

One of the more intriguing transformative properties of AI is predictive analytics. It can monitor historical and current tax laws to predict upcoming changes, potentially simplifying compliance. At the very least, it helps businesses provide maximum value to their clients. 

More importantly, this technology drives value. Organizations can benefit financially from offering AI-powered services. Algorithms’ powerful capabilities draw in tech-savvy clients while their minimal reliance on human intervention doubles as a cost-cutting measure.

Integrating AI Tools With Existing Tax Software

Tax filing season is a chaotic period for many businesses — organizing months’ worth of financial records can quickly become hectic. AI can simplify the process through integrations, enabling them to streamline operational workflows during a busy time.

Tax preparers and auditors can integrate their AI tools with existing tax software to minimize data silos, streamline workflows and minimize the necessary amount of manual data entry. Whether they want to improve projection analysis, gain data-driven insights into tax planning strategies or improve compliance reporting, machine learning models can support them. 

AI integrations can enable automation, allowing tax software to perform background actions around the clock. This way, tax preparers and auditors can process financial data or finish tasks when not at work — which gives them enough free time to take on more clients or prioritize particularly complex returns. 

The Implications of AI Integrations for IT Teams

While integrating AI tools with existing tax software can be a financially and operationally sound strategy, it comes with considerations. IT professionals must contemplate what it means for cybersecurity, client confidence and compliance.

Cybersecurity 

While prompt injection and adversarial attacks are relatively unlikely in a controlled internal setting, IT professionals still must consider the security of their model. As AI tax preparation and auditing becomes more popular, threat actors will know to make them targets for data theft. 

IT teams have a duty to protect the sensitive financial data algorithms process and analyze. Integrations can make AI more vulnerable to tampering and breaches, so establishing robust cybersecurity measures is vital.

Confidence

The responsibility of data set validation will likely fall to the IT team to some extent. They should prioritize audits to mitigate tampering and, subsequently, algorithmic errors. Considering even a handful of mistakes can quickly erode clients’ trust, routine inspections are critical. 

Compliance

Potential non-compliance is a concern when an algorithm incapable of understanding context is the driving force behind tax planning and auditing. Unfortunately, the IRS will likely recognize an AI’s innocent mistake as potential fraud or misreporting.

IT professionals should ensure data sets retain only anonymized information to keep the algorithm from referencing real people or leaking someone’s actual financial details. Consistent audits can prevent these costly mistakes. 

A Tax Professional’s Role in an AI-Driven Sector

Tax professionals' roles will evolve as AI becomes a larger part of business tax planning and auditing. Since an algorithm can automate repetitive, procedural work, they will have to shift toward a strategic advisory role — or they’ll quickly find themselves growing redundant. 

Tax professionals must learn to rely on their uniquely human skills. Algorithms are incapable of contextualization, critical thinking and creativity — all things essential for a thorough business tax planning strategy. 

At the very least, tax professionals will likely begin promoting their AI tools to add perceived value to their services. They’ve already been under pressure to do more for less in recent years, so this is one of the few ways to preserve quality and attract clients while cutting costs. 

However tax professionals integrate AI into their services, caution is paramount. While algorithms are incredibly accurate, nothing is perfect — and the IRS doesn’t look kindly on mistakes. 

At best, tax preparation businesses will have to compensate clients to preserve their reputations. At worst, the IRS will rescind their preparer tax identification numbers and local regulatory agencies will take legal action. Needless to say, careful implementation is wise. 

Is AI the Future of Business Tax Planning and Audits?

While most tax professionals haven’t implemented AI yet, the technology promises to be transformative. Once the pioneering few prove it has serious potential, adoption rates will likely increase. In all likelihood, it will become an industry staple in the coming decades.