By Ted Sarenski, CPA/PFS, AEP
Is artificial intelligence ready to take over most of our daily lives because it will be able to think? Maybe in the future, but currently it is only as good as the information it has been fed from history.
I started my questioning by asking simply, “Can I file my tax return using ChatGPT?”
The reply was, “No, you cannot file your tax return using ChatGPT or any similar AI-based text-based platforms.” It went on to say taxes involve specific legal and financial requirements and must be submitted to the appropriate government authorities through official channels.
Can ChatGPT or other similar AI programs assist me in preparation of my income tax return? I posed a series of questions to find out if AI can be a resource for dependable tax code information. Here is what I discovered.
First, ChatGPT let me know that its knowledge for tax information is based on information available up to September 2021. So much for finding out the most recent income tax law changes; search engines and the IRS.gov website will be more useful for that..
Almost all the answers to my questions had a final paragraph which said, “Tax laws and regulations can change, so consult with a tax professional or use tax preparation software to ensure that you are correctly reporting….”
Form 1040
Did ChatGPT get anything correct regarding tax information? Yes. The answers to questions that involved historic tax information were accurate and included explanations. One of my first questions was regarding filing status. It accurately knew that if I was married or divorced before Dec. 31 that it was my status as of the Dec. 31 date which determined my filing status for the calendar year. It also recognized that if I were divorced that I might be able to file as head of household status if I met the requirements. Yet, I was left to explore on my own what those requirements are.
Moving down the Form 1040, I asked about claiming my children or parents as dependents. Since rules about dependency exemptions have not changed (currently a potential credit) it accurately showed six criteria for children along with explanations for relationship, age, residency support, citizenship and, if the child is married, that they cannot, unless it is solely to get a refund of withheld or paid in tax, file a joint income tax return with his/her spouse.
Its answer to the question about “parents as dependents” mentions all of the rules that must be met along with a sentence not included in the “child as dependent” answer. It ended with: “However, keep in mind that the Tax Cuts and Jobs Act of 2017 eliminated personal exemptions for tax years 2018 through 2025.”
I was pleased with the completeness of the answers.
The numbers part of Form 1040
The first income line on Form 1040 is recording your W-2 income information. When I asked about how to include my W-2 information, ChatGPT suggested opening my tax software or finding the proper form to use if filing by hand. Not very helpful. But, when I asked what to do if I have not received my W-2, it correctly listed the steps to take, starting with “contact your employer” and then going through the steps of verifying your address, requesting a duplicate W-2, using the IRS “get transcript” tool, filing a substitute W-2 using Form 4852 and contacting the IRS if all the other options have failed. A great guide.
The next line on Form 1040 is reporting your interest and dividend income. I asked why I did not receive a 1099-Int from my bank for my savings account that earned $8 of interest this year. ChatGPT knew the reporting threshold for interest income is $10 but told me it is still my responsibility to report all income, including interest income, on my return, even if I don’t receive a form. Is the IRS involved in teaching AI? I didn’t ask ChatGPT any moral or ethical questions— though I am curious and will try those later.
The remaining lines of Form 1040 get into more complicated reporting. How well did ChatGPT do in the following areas of small business income from Schedule C, rental income or loss, capital gains or losses, IRA distributions or rollovers, and Social Security?
What follows is what ChatGPT could or could not answer.
In each answer of the more difficult areas of a personal income tax return, ChatGPT recommended I retain my records to support the information I was using to complete my return. That’s good advice for everyone. I was surprised, because this suggestion is not a factual issue but a recommendation.
The answer to what I could deduct from my small business income listed 12 items with explanations as to how the items relate to my business. ChatGPT also included a paragraph informing me of the need to report my self-employed income for Social Security and filing estimated quarterly tax payments. It then suggested I stay informed and consult a professional if necessary. Asking about a specific potential deductible item gave me a more generic answer. Questions about rental income or loss generated similar answers as with small business income, but did include a section about being a real-estate professional with rental income being non-passive.
The capital gain or loss answers were very good, starting with: gather your forms 1099-B, calculate short-term and long-term gains or losses separately, then use Form 8949 first before transferring the information from that form to Schedule D. There’s no new legislation in this area since September 2021 so the answers were accurate.
The answers to questions about IRA distribution Form 1099-R and the taxability of Social Security were detailed and accurate, too, because the tax law has not changed in these areas.
More difficult tax issues
I asked ChatGPT about the rules for Qualified Charitable Distributions (QCDs). QCDs allow taxpayers to make tax-free charitable donations to 501(c)(3) charitable organizations directly from their IRA account if they are 70½ years or older. The QCD thus reduces the taxable portion of someone’s Required Minimum Distribution. ChatGPT knew the rules (not changed since September 2021) and accurately described the steps to make a QCD.
The rules for inheriting IRA accounts after death have had numerous IRS rulings come out since September 2021, so in this area, answers to questions were inaccurate. Even the general information supplied was insufficient, in my opinion, for anyone to rely on.
I asked about specific state personal income tax issues and received very generic information in reply and also the caveat that the information was only good through September 2021.
The bottom line
There ends up being more cons than pros in using ChatGPT or another AI platform for your taxes.
First, the information is only as good as the AI platform’s last update in the tax area. In the case of ChatGPT, a September 2021 last update is now two years old. As a CPA, I know what I can rely on in the answers and I know what areas of the tax law have been updated since that date. A non-tax person does not have this knowledge so will be misguided in filing an accurate tax return using AI. Second, if you don’t ask the right question, you won’t have a chance at getting the right answer. I have this same problem with most off-the-shelf personal income tax software.
I have found search engines to be much more reliable for up-to-date information on many topics and would suggest using them for tax information or suggestions.
My last question to ChatGPT was, “Can you recommend a tax professional in my area?” Possibly, this was the best answer to all of my questions.
“I’m sorry, but I don’t have access to information about specific tax professionals or their locations. To find tax professionals in your area, you can consider the following options:”
- Ask for recommendations.
- Online directories (it listed 4).
- State or local CPA societies.
- Online reviews.
- IRS directory and
- Interview multiple professionals.
I am relieved in one respect. After doing this research, the idea of AI replacing humans is a long, long way off.
About the author:
Ted Sarenski, CPA/PFS, AEP is recognized locally and nationally as an expert providing financial planning advice. He currently appears on WSTM-3, Syracuse’s NBC affiliate, taking viewers’ calls and offering planning concepts to viewers. Ted has also appeared on the PBS affiliate in Syracuse as a guest host of the program “Financial Fitness.” Ted received the 2013 Distinguished Service Award by the American Institute of Certified Public Accountants Personal Financial Planning Division for contributions to further financial planning within the CPA community, industry-related publications and speaking engagements across the country. He has been interviewed and quoted in many publications including: USA Today, The Wall Street Journal, Consumer Reports, The Christian Science Monitor, Investment News, Kiplinger Personal Finance Report, Financial Planning Magazine (cover photo February 2013), Accounting Today and The Practical Accountant. Learn more at SageView Advisory Group.
Editor’s Note: The content was reviewed for tax accuracy by a TurboTax CPA expert for the 2022 tax year.
