The Future of AI in Taxes and Auditing: What It Means for You
When most people hear “AI,” they think robots, ChatGPT, or maybe that it’s coming to take everyone’s jobs. And honestly, I’ve seen other tax professionals mention this in fear. But honestly, AI isn’t replacing your tax professional anytime soon – it even agrees! Instead, it’s becoming a powerful tool behind the scenes that will change how your books are managed, how audits are performed, and how you interact with your CPA or EA.
Where AI Already Shines
AI is already helping accountants work smarter, not harder. Think of it as an extra set of eyes that never gets tired. For example:
- Bookkeeping reviews: Upload a spreadsheet, and AI can scan for duplicate entries, missing invoices, or oddball expenses in seconds. What used to take hours can now be done in minutes.
- Fraud or error detection: AI can spot unusual patterns like transactions just under approval limits or inconsistencies between bank statements and books.
- Paperwork automation: From pulling numbers off receipts to organizing PDFs, AI cuts down on the boring, repetitive stuff so professionals can focus on the real work.
Where AI Isn’t Ready Yet
When it comes to preparing a tax return or representing someone in front of the IRS, AI still falls short. Tax law is complex and constantly changing, and a single misstep can cost money or trigger penalties. At this stage, AI is more like a helpful assistant than a decision-maker or document producer. The judgment, interpretation, and liability remain with your tax professional.
The Double-Edged Sword of More Accurate Audits
One thing worth noting: while AI can make audits faster and more precise, that’s not always good news for the person or business being audited. Here’s why:
- Corporate or nonprofit audits: AI-powered tools allow CPAs to dig deeper into your books and flag even the smallest inconsistencies. That means less wiggle room for mistakes and a higher chance that small and repetitive issues get called out.
- IRS audits: The IRS itself is leaning into AI to close the tax gap (estimated to be around $688 billion between taxes owed and taxes paid), improve customer service and lastly, enhance tax enforcement. Instead of relying heavily on random selection, AI helps the IRS target returns more strategically, focusing on high-income taxpayers, complex businesses, and returns with red flags. In other words, if you’re earning more, running a larger business, or claiming complex deductions, you may face a greater risk of being audited than in the past.
In short: better accuracy benefits transparency, but it also means clients need to keep cleaner books and be prepared for closer scrutiny, especially if their financial situation and money management habits puts them in a higher-risk category.
What This Means For The Client & Tax Pro Relationship
As AI grows in the tax and accounting world, you’ll likely see faster turnaround times, cleaner books, and more efficient audits. Admittedly, I see AI is still shaky on even the basics of the grunt work, which is why, particularly when it comes to bookkeeping, you want a higher end accountant or CPA doing your books and not an amateur bookkeeper with no degree. You need someone who knows exactly what your financials should look like and who isn’t passively sitting by letting AI automate the bookkeeping process for them.
As professionals are able to lean on AI more, your CPA or EA will have more time to focus on you. This ultimately means more strategy and advisement, evaluating your current tax situation and getting faster answers to “what if” questions like “what if I bought a business car before year end” “what if I max out my 401(k) and change my business salary by $xx,xxx” – anything and everything you can think of. If you want to take your business planning to the next level, year round tax strategy with your CPA or EA is going to be crucial and something AI will not be able to replace. Taxes aren’t just numbers – they’re tied to your goals, your business, your family, and your future. That’s why the relationship you have with your tax professional will remain central. AI can crunch the data, but it can’t replace the judgment, experience, and trust that comes from working with a human advisor who knows your story.
Additionally, I have not seen AI be integrated into tax preparation software like it’s being integrated into bookkeeping software. Filing W2s, 1099s, quarterly, and annual tax returns is still very much manual. Requiring a human looking at client’s paper documents, IRS code and instructions, and final tax returns produced from data entry to ensure the tax filing is correct and the client is receiving the best, legal outcome. Simply put, human tax preparation is not going anywhere any time soon and will remain superior to automated software and AI fillings for quite some time.
Myself and AI agree – the future of taxes and accounting isn’t “humans versus AI.” It’s humans + AI and that combination means better service, stronger advice, and a smoother financial journey for you.