In recent years, artificial intelligence (AI) has made a dramatic entrance in a number of industries, and the accounting sector is no exception. AI’s ability to enhance efficiency, accuracy, and productivity is providing tax firms with a remarkably cost-effective way to improve their operations and drive growth.
As intelligent as AI is, however, successfully adopting the technology isn’t as straightforward as it seems. In this article, we’ll examine the most effective ways tax firms can integrate AI into their operations, take a look at the common pitfalls that come with the territory, and explore how platforms like Harness are delivering AI solutions tailored to the tax industry.
Table of Contents
- Identifying AI opportunities
- How to improve client communication with AI
- Using AI to streamline document collection and management
- Using AI for tax planning insights and client recommendations
- How AI is used at different corporate scales
- How to use AI in tax return preparation
- Best practices in AI adoption
- How Harness can help
- FAQs
Identifying AI opportunities
The first step tax firms should take when incorporating AI into their operations is pinpointing time-consuming, recurring, or error-prone tasks as potential AI targets. While tax return preparation is an obvious area (which we’ll discuss later), firms should also look at tasks such as client communication and document management.
Starting with one or two of these key areas allows firms to focus on initial integration, which can also iron out any operational issues. This first step serves as a solid foundation for further AI expansion.
How to improve client communication with AI
AI provides tax practices with advanced communication capabilities, offering automatic, yet highly personalized ways to stay in touch with clients.
Automated reminders: AI can automate reminders for document submissions and key deadlines, reducing manual follow-ups and streamlining workflows. While traditional project management (PM) systems can achieve this, AI takes the functionality further by adapting reminders based on client responsiveness or past behavior and reducing generic messages.
AI-powered chatbots: AI chatbots on websites or client portals can answer frequently asked questions—and even resolve basic tax issues—freeing up staff time for more complex inquiries.
Personalized updates: Beyond standard status notifications, AI can analyze comprehensive client profiles and financial data to send tailored updates on return status or relevant tax news that’s pertinent to a specific client.
AI-driven communication may be incredibly effective, but it does not replace the human touch. Personal follow-ups remain a key part of the client equation, especially for tax firms. The last thing you want is for clients to feel they’ve been deprioritized and are now dealing with a machine.
Using AI to streamline document collection and management
Client document management is a vital and often cumbersome process that can benefit hugely from AI involvement.
AI-powered secure document portals: Secure portals with AI-driven features can automate upload reminders and track document status, simplifying collection.
Optical Character Recognition (OCR) and AI data extraction: AI combined with OCR can automatically extract key data from various document formats. When used effectively, it can shrink any manual data entry while reducing errors.
AI for flagging missing information: AI algorithms can identify incomplete submissions or potential discrepancies, allowing for proactive follow-up with clients.
When it comes to managing client data accurately, Harness’s AI-powered data extraction and import platform can automate data entry. It handles everything from standard documents to complex K-1s, allowing tax firms to take on more clients cost-effectively.
Using AI for tax planning insights and client recommendations
Beyond streamlining traditionally manual-oriented tasks, AI can also serve as a powerful tool for tax planning. When analyzing client data, AI algorithms can identify potential tax-saving opportunities and generate personalized recommendations. In these situations, AI can identify insights that a human advisor might not immediately recognize.
AI can also forecast future tax implications based on current data and emerging trends, delivering proactive advice that helps strengthen a tax advisor’s position as a strategic partner in their clients’ financial future.
AI options for tax practices
There are a number of tax-oriented platforms available; however, some of the more effective include:
- Dext Precision: Streamlines financial records by extracting information from receipts and invoices and automating data entry.
- Silverfin Assistant: Provides actionable insights by continuously analyzing client files, highlighting potential issues and opportunities, and helping firms monetize those insights.
- Vic.ai: Improves invoice processing productivity by automating accounts payable processes, potentially by as much as 355%.
- QuickBooks Intuit Assist: Offers an AI-powered virtual assistant that helps manage invoices, categorize transactions, and provides financial insights.
- ChatGPT: While not a tax-specific platform, ChatGPT is highly effective for data analysis, task automation, research, reporting, and communication.
- Blue Dot: Provides a centralized platform for tax and compliance, including tracking and calculating taxable employee benefits.
- Zeni: Offers real-time financial insights and accounting services, particularly for startups and small businesses.
As useful as these AI platforms may be, they require constant human review and validation. It’s important to remember that even highly developed AI systems such as ChatGPT can occasionally generate erroneous and fictitious responses. The technology may be advanced, but it’s still a long way from replacing a human tax advisor.
How AI is used at different corporate scales
Dependable, independent tax strategizing may still be beyond the remit of current AI systems, however, their true worth lies in their ability to detect patterns and errors. Larger organizations like Deloitte, EY, PwC, and KPMG have been early adopters of the technology, using AI for tasks such as:
- Large-scale document review in due diligence
- Fraud detection through anomaly analysis
- Advanced data synthesis for complex reporting
- AI-powered virtual assistants for client support
While these larger firms often have dedicated technology teams and develop their own custom AIs, AI technology is increasingly accessible and affordable for smaller firms. More modest tax practices can now readily use off-the-shelf AI tools for tasks such as bookkeeping automation, AI-powered tax research, data extraction, and document review—all of which dramatically boost operational efficiency.
How to use AI in tax return preparation
Tax return preparation is one of the most time-consuming and detail-oriented tasks that accounting firms engage in. AI can streamline the process in a number of ways.
Automated data extraction and population: An AI using OCR and Natural Language Processing (NLP) can automatically extract relevant data from various financial documents, including W-2s, 1099 series, bank statements, and brokerage reports. This extracted data is then automatically populated into the corresponding fields of tax forms, which reduces manual data entry and the associated risk of human error.
Intelligent document categorization and organization: AI algorithms can automatically categorize and organize uploaded client documents based on their type and content, making it much easier and faster for tax preparers to locate the specific information they need.
Error detection and consistency checks: AI can identify potential errors, inconsistencies, and missing information within the tax data and the populated tax forms. When it performs automated consistency checks and flags potential issues, AI can improve the speed and overall accuracy of tax returns before submission.
Identification of relevant deductions and credits: AIs can analyze a client’s entire financial data and identify potential tax deductions and credits that a human preparer might inadvertently overlook, ensuring that clients benefit from all applicable tax advantages.
Assisting in complex tax scenarios: Human tax expertise may be the key to resolving complex tax situations, however, AI can provide valuable assistance by analyzing large datasets of tax laws, regulations, and relevant court decisions to identify pertinent precedents and potential strategic approaches.
Best practices in AI adoption
In order to successfully implement an AI platform into your tax practice operations, several factors need to be carefully considered.
Data
AIs may be able to identify patterns and extract insights from the data you supply, however, the systems are unable to judge the innate quality of that data. An AI will use any given data as its source of truth, no matter how fundamentally flawed the information may be.
As a result, data inputs used for AI must be clean, accurate, and comprehensive, with data curation a key part of the AI adoption process.
Regulation
AI is a relatively recent technology, and there are currently limited regulations regarding its use in the accounting sector. Tax firms should consider potential regulatory developments and prepare strategies ready for use as clearer guidelines emerge.
Staff training
Like any technology, to get the most from your AI platform, your staff needs to know how to use it properly. Tax firms should invest in training programs that improve data literacy and critical thinking skills to effectively evaluate AI outputs.
Beware of biases
As mentioned, an AI’s “intelligence” is based on its input data. If that data exhibits societal biases, so will an AI’s performance, limiting its objectivity and fairness. For example, large language models have a habit of assuming a doctor is a ‘he’ and a nurse is a ‘she,’ reflecting traditional but outmoded gender roles. Tax firms should work to identify and reduce potential biases in their AI inputs to ensure fair and reliable outcomes.
How Harness can help
At Harness, our AI-driven data management technology has been specifically engineered to meet the needs of tax advisors. With our platform designed to integrate smoothly with your existing tax preparation software, accountants can use advanced AI features like automated data extraction and smart document organization without the need for a complete and potentially disruptive system overhaul. This ease of use means that even smaller accounting practices can benefit from AI advancements.
Handling everything from standard tax forms to the most intricate K-1s, Harness’s AI platform offers tax firms the opportunity to increase efficiency, reduce manual effort, and heighten their client service. Improve the efficiency of your tax firm with AI technology from Harness. Discover how Harness’s AI-driven technology can improve the efficiency of your tax practice.
FAQs
Common questions regarding AI use in tax firms include:
What is the difference between AI and generative AI for tax professionals?
Artificial intelligence (AI) is a broad field focused on enabling computers to perform tasks typically requiring human intelligence, such as analyzing data or making predictions. Generative AI, a subset of AI, specifically focuses on creating new, original content like text, images, or code based on learned patterns.
For tax professionals, while standard AI might analyze financial data, generative AI could draft client correspondence or suggest initial content for tax planning scenarios.
How can embracing AI specifically benefit tax professionals within the tax and accounting industry?
AI offers tax professionals significant time savings by automating mundane tasks like data entry and document sorting. AI-powered tools can also analyze data more efficiently, providing actionable insights for better client service and strategic decision making. This allows tax professionals to focus on complex tax questions and build a more competitive edge.
What are some practical applications of AI tools for tax compliance and tax filing processes?
AI tools can assist tax professionals by automating the population of tax forms and drafting client letters related to tax filing requirements. While they are not a replacement for human oversight, AI tools can increase efficiency and help tax teams manage the increasing complexities of tax codes and changing regulations, ultimately streamlining the tax workflow.
How can tax departments and tax teams use machine learning and data analytics to improve their tax function?
Machine learning algorithms can analyze data to identify patterns and potential risk areas for tax compliance. Data analytics provides actionable insights from financial reporting data, allowing tax departments and tax teams to make more informed decisions. It also helps improve their tax workflow, and proactively addresses potential issues before scrutiny from tax authorities.
What considerations should business leaders keep in mind regarding AI implementation and risk management within the tax profession?
Business leaders considering AI implementation must prioritize data quality and establish sturdy review processes to reduce potential risk. Understanding the limitations of artificial intelligence and ensuring human oversight for complex tax questions and compliance checks are crucial for responsible and effective AI adoption, safeguarding against errors and future challenges.
Beyond direct tax preparation, how can AI-powered tools and advanced tools assist with tasks like invoice processing and responding to IRS notices?
AI can automate invoice processing by extracting relevant data and streamlining workflows. For IRS notices, AI can help analyze unstructured data to identify key issues and draft initial responses, saving significant time for tax teams.
How can tax professionals maintain a competitive edge and reduce costs by strategically using AI powered tools?
Strategically embracing AI-powered tools allows tax professionals to increase efficiency by automating mundane tasks, resulting in faster turnaround times and enhanced analysis. This automation directly contributes to reducing costs associated with manual processes and allows tax teams to navigate changing regulations more effectively, ultimately providing better value to clients.
Beyond tax, how can generative AI tools be utilized by accountants to enhance their productivity?
Generative AI tools offer accountants the potential to automate the creation of various documents, such as initial drafts of financial reports, client summaries, and even internal policy outlines. It also saves time by streamlining the initial stages of content creation, so accountants can focus on review, analysis, and providing more strategic insights rather than spending hours on repetitive tasks.
How is AI for accountants specifically transforming the accounting landscape? AI is fundamentally reshaping accounting by automating numerous routine tasks, such as data entry and reconciliation, which traditionally consume significant time. As a result, accounting professionals can spend time on higher-level analysis, strategic advisory services, and interpreting complex financial information rather than being bogged down by repetitive tasks within their accounting software.
Disclaimer:
Tax-related products and services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness Wealth”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. Registration does not imply a certain level of skill or training. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances. This article is a product of Harness Tax LLC.
Content was prepared by a third-party provider and not the adviser. Content should not be regarded as a complete analysis of the subjects discussed. Although we believe the content is reliable, it is not guaranteed as to accuracy and does not purport to be complete nor is it intended to be the primary basis for financial or tax decisions.
