The rise of artificial intelligence in accounting isn't coming—it's already here. Just ask consumers; around a quarter of Americans say they'd trust ChatGPT to review their personal income taxes. In fact, 14% have already used the popular AI tool for this purpose. But artificial intelligence and machine learning are also transforming tax planning and compliance for professionals at a rapid rate.

Advances in AI and machine learning are changing the tax industry by making manual data entry and analysis obsolete, automating routine tasks and improving compliance management. The results are more efficient and accurate processes when businesses understand how to implement AI correctly.

Understanding AI and machine learning in taxation

Before delving into how AI is revolutionizing areas of accounting like tax planning, it's important to understand key concepts related to AI in accounting.

Key concepts: AI and machine learning simplified

Artificial intelligence is an umbrella term for technologies that simulate human-like intelligence via machines. A common example of AI is Amazon Alexa and other virtual assistants. Machine learning is an AI process that involves teaching computers to continue to learn from ongoing inputs and data so they can improve the experience they offer without a constant need for humans to program them.

Machine learning and other AI processes typically involve complex algorithms that allow computers to recognize patterns and make decisions based on them. For example, Netflix employs algorithms that process data about what you watch, when you watch it, how long you spend on various content, and other viewer behaviors. Netflix AI uses that data to automate recommendations for what you might want to watch next.

Why taxation needs AI and machine learning

AI use is gaining prevalence in industries that involve huge amounts of complex data, including social media, entertainment, human resources, ecommerce and shipping and receiving. This is partly due to the fact that AI can receive, parse and analyze hundreds—or even millions—of data points in seconds before providing actionable conclusions and recommendations.

This efficiency is critical to taxation and compliance. As regulations become increasingly complex—and stem from increasing numbers of organizations—it's impossible for human experts to source, remember, and apply them all. Increased reporting requirements, the weight of the public eye, and a need to support profit margins in challenging markets all put a burden on finance and accounting professionals that AI can help carry.

Revolutionizing tax planning with AI

Whether you're involved in strategic finance for business growth or tax planning to protect corporate assets, AI's impact on accounting can't be overlooked.

How is AI used in accounting and tax planning?

AI is used to gather data, review data and even create reports and documents for tax planning and accounting purposes.

For example, generative AI tools can be fed public and proprietary data, including client financials, current regulatory decisions and the requirements for certain types of reports. Generative AI, which is powered by natural language processing technology, can create draft forms of reports, such as Pillar II disclosures or rate reconciliation disclosures.

AI can also be used to automate routine tasks and reduce the opportunities for error that come with data entry. Removing tedious manual work from human experts allows them to focus on other services. For instance, Goldstein Enright Accountancy uses tools like CCH ProSystem fx Scan and CCH ProSystem fx Engagement to digitize client documents, mark up those files, and gather relevant data for tax returns. It uses AI to support individual and business tax returns, but more complex returns require a hybrid approach of machine and human interaction.

Some benefits of AI over traditional methods

Benefits organizations see when they combine AI and accounting include:

  • Streamlined processes. AI can help you cut out unnecessary middleman processes, such as transferring data from forms to digital databases.
  • More efficient processes. AI's capability to work with large amounts of data and process tasks quickly helps accounting organizations get through tasks faster.
  • Reduced opportunity for error. While AI is not infallible, it is much more accurate in data entry and other tedious, repetitive tasks than humans are.
  • Ability to scale. Accounting organizations that use AI to drive efficiencies are able to take on other tasks or clients, as their expert human resources are freed from those tedious tasks.

Enhancing compliance with machine learning

One growing role of artificial intelligence in accounting and finance is in enhancing compliance and helping organizations meet regulatory challenges.

Machine learning for error-free compliance

Machine learning offers a specific benefit in compliance work. The right AI tool can ingest all of the current regulatory requirements and decisions—and continue to ingest future decisions as soon as they are published. This allows for rapid application of new data to tax planning and financial compliance processes and ensures that no stone is left unturned when it comes to considering compliance and regulations.

However, because AI is not infallible, satisfactory results tend to require human-AI collaboration. Think of it like this: AI does the heavy lifting with tedious research and analysis, and a human accounting expert reviews results and finalizes planning or reporting.

Navigating complex tax laws with machine learning

Large language models (LLMs) can be trained on huge amounts of data, including entire books, tax regulatory code, and written court decisions. These models can recognize patterns and interpret data in a very human way, but they don't have the resource limitations that a human brain does, making them a powerful ally in navigating complex tax laws and applying them to specific situations.

At the same time, LLMs are prone to an issue known as hallucinations. This occurs when the AI arrives at a false conclusion based on the data. You can limit AI-generated mistakes and misinformation by retraining LLMs and using the right prompts, making this area of accounting and AI an evolving field.

The future of taxation: AI and machine learning trends to watch

The future of artificial intelligence and accounting is likely to bring more accurate large language models. As developers and AI experts train and hone these tools, they will become more able to handle tasks such as report generation and compliance suggestions with minimal human intervention.

However, while accounting organizations use AI to manage tax compliance and other regulatory challenges, they must keep an eye on the potential regulation of AI. The federal government has been clear that it expects to play an active role in managing AI use, for example.

Benefit from early adoption of technology in tax practices

While tax AI is a constantly evolving topic, one fact seems sure to remain consistent: AI and machine learning will be a part of accounting processes for the foreseeable future. Adopting these technologies now allows organizations to support efficiencies, increase the value of outputs, and scale services without investing in additional human capital. As an early adopter of such technology in the accounting industry, you also position yourself for better success as these solutions become an inevitable part of everyday work.