Should You Use AI to Prepare Your Tax Return?

Key Points:

• Many taxpayers are beginning to use AI tools to help prepare their tax return.
• AI can make tax preparation faster and more efficient by organizing documents, identifying deductions, and reducing calculation errors, but it’s not foolproof.
• High earners and tech professionals with equity compensation may benefit from AI for tasks such as modeling stock option decisions, organizing documents, and estimating taxes, but the final return should still be reviewed by a qualified tax professional.

Artificial Intelligence (AI) is quickly becoming part of everyday life. Many people now use it to edit emails, summarize information, automate routine tasks, and even help think through complex problems. Used well, it can save time and improve efficiency in ways that would have seemed impossible just a few years ago. And as AI tools become more capable and widely available, it’s natural that people are beginning to use them for more important tasks, including preparing their tax returns.

A recent Wall Street Journal article noted that a growing number of taxpayers are turning to AI tools for help during tax season. The appeal is obvious. Taxes can be confusing and time-consuming, and having a digital assistant walk you through the process sounds convenient.

However, tax preparation is an area where accuracy matters. While AI can be a helpful tool in parts of the process, relying on it too heavily can introduce risks many taxpayers may not realize.

If you’re considering using AI to prepare your tax return, here’s what you should know.

How Are Taxpayers Using AI to Prepare Their Tax Returns?

Taxpayers are increasingly turning to AI as a helper for specific tax-related tasks. Rather than preparing an entire return, many people are using these tools to estimate taxes, value charitable donations, organize financial data, and research tax rules.

The Wall Street Journal highlighted several real-world examples:

• An investor used Microsoft Copilot to build a spreadsheet for planning Roth conversions from an IRA, timing transfers during equity price dips to move more future gains into the Roth.
• A donor used Gemini to estimate thrift-store values for a long list of donated household items.
• An eBay seller ran product descriptions through AI to convert them into organized tables for tax records.
• An investor used Grok to estimate capital gains and net investment income tax on a large Apple stock sale.

Some taxpayers reported that AI saved them significant time. Others found the results inaccurate or incomplete and had to verify the information themselves or adjust their prompts to get better answers. Understanding both the advantages and the limitations can help you avoid costly mistakes and unnecessary work later.

Advantages of Using AI for Tax Returns

AI can save time and streamline parts of the tax preparation process. When used responsibly, it can make gathering information, organizing records, and completing routine steps more efficient.

Here are several potential advantages of using AI to help prepare your tax return:

• Increased Speed and Efficiency. Some tax software and AI tools can process large amounts of information quickly, helping organize W-2s, 1099s, receipts, and other documents in minutes.
• Lower Cost. Major tax software providers such as TurboTax and H&R Block are incorporating AI features, and their software is typically less expensive than hiring a human accountant. This can make these platforms practical options for simple or straightforward tax situations.
• Identification of Deductions and Credits. Modern tax software with AI features can scan financial records and flag potential deductions or credits that might otherwise be overlooked.
• Reduced Calculation Errors. By automating calculations and cross-checking entries, AI can reduce basic math errors that sometimes occur with manual filing.
• 24/7 Availability. AI tools and chatbots can answer questions and guide users through forms at any time, without waiting for office hours.
• Strong Accuracy in Routine Cases. For standardized tax situations with consistent data, modern tax software can produce highly accurate results.

Drawbacks of Using AI for Tax Returns

While AI can be helpful in certain parts of the tax process, it also comes with important limitations. If you rely on it too heavily without verifying the results, mistakes can become expensive.

Here are several drawbacks to keep in mind before using AI to prepare your tax return:

• Risk of Inaccurate Answers. AI tools can misinterpret complex tax rules or generate incorrect information, sometimes referred to as “hallucinations.” A 2024 Washington Post investigation found that some AI chatbots produced inaccurate responses to complex tax questions about half the time.
• Data Privacy and Security Concerns. Depending on the tool, entering sensitive financial information into AI platforms may expose personal data such as Social Security numbers, income records, or account details to potential security risks.
• Difficulty with Complex Situations. AI tools often struggle with complicated tax scenarios, including multi-state filings, foreign income, cryptocurrency transactions, or business ownership structures.
• Lack of Professional Judgment. AI can summarize rules, but it cannot replace the judgment of a qualified tax professional who can interpret gray areas and provide strategic guidance.
• Potential for Outdated Information. Tax laws and IRS guidance change frequently. Some AI models may rely on outdated information if they aren’t continuously updated.
• You’re Still Responsible. Even if AI helps prepare your return, you remain legally responsible for the accuracy of the information submitted to the IRS. Errors can still lead to penalties, interest, or audits.

How Can Tech Professionals with Equity Compensation Use AI for Tax Prep and Planning?

While AI still has limits when it comes to preparing tax returns, its capabilities continue to improve. That could be particularly helpful for tech professionals who receive equity compensation, since the tax treatment of stock options and RSUs can be complicated and easy to misinterpret.

Here are a few ways AI could potentially help tech professionals manage tax prep and planning for employee equity throughout the year:

• Automated Data Extraction and Cost Basis Detection. TurboTax can now scan 1099-B forms and flag missing cost basis information using AI. This is a common issue with RSUs, where brokerage firms often report a zero cost basis or leave that part of the form blank.
• Real-Time Exercise and Sale Simulations. Emerging platforms use AI to model “what-if” scenarios for exercising stock options. This could help you estimate the potential impact of the Alternative Minimum Tax (AMT) or a higher tax bracket before making decisions.
• Error and Anomaly Detection. AI tools may also identify discrepancies in vesting data or unusual numbers that could indicate reporting errors before they become larger issues.

AI tools are evolving quickly, so it’s worth doing some research before choosing a tax preparation platform. Not every tool is appropriate for every situation. Even if you use AI to streamline parts of the process, it’s still wise to have a qualified tax professional review your final return to help ensure accuracy and compliance.

Additional Ways High Earners Can Use AI for Tax Prep

AI can help simplify several other parts of the tax preparation process, particularly for high earners who tend to have more moving pieces in their financial lives. While it shouldn’t replace professional guidance, it can make organizing information and identifying opportunities much easier.

As you prepare your tax return, here are some additional ways AI tools may help:

• Charitable Donation Tracking and Valuation. AI tools can help organize records of charitable contributions and estimate the value of non-cash donations, such as clothing or household goods. Some platforms can also analyze giving patterns and help document contributions more clearly for tax reporting.
• Expense Categorization for Deductions. For those with side businesses, consulting income, or rental properties, AI can automatically categorize transactions from bank and credit card statements. This can make it easier to identify deductible expenses and reduce the time spent manually sorting receipts.
• Document Organization and Summaries. High earners often receive multiple tax documents throughout the year. AI tools can help organize W-2s, 1099s, K-1s, brokerage statements, and other records into a structured format, making it easier to review everything before filing.
• Estimated Tax Payment Projections. AI tools can help you estimate quarterly tax payments based on inputs you provide, but you should still verify the numbers using IRS safe harbor rules or with a tax professional.
• Flagging Missing Documents or Inconsistencies. Some AI tools are designed to scan financial records and identify missing tax forms or unusual entries that may require further review before filing.

Proceed with Caution If You Use AI to Prepare Your Tax Return

AI can be a helpful tool, but it isn’t foolproof. It can speed up the process of gathering information, organizing documents, and running basic calculations. However, it’s still important to verify any AI-generated numbers or recommendations against official IRS guidance before submitting your return. For complex filings, multi-state situations, or high-income households, working with a qualified tax professional remains a lower-risk option.

It’s also worth noting that the One Big Beautiful Bill Act (OBBBA) introduced significant changes to the U.S. tax code, many of which affect  tax returns. Not all AI tools may reflect these updates yet, which makes double-checking the information they provide especially important.

Another consideration is support. If the IRS questions something on your return, a tax professional can help you respond and navigate the process. If you rely solely on AI, that responsibility falls entirely on you.

At Simplicity Wealth Management, we help tech professionals with equity compensation navigate the complexities of tax and financial planning throughout the year. If you’re ready to move beyond tax prep and discuss proactive strategies that align with your broader financial goals, we invite you to book a complimentary Simplicity Session to learn more.