How Can Artificial Intelligence Help The Average Taxpayer?
We still have some time before an artificial intelligence (AI) tool like ChatGPT can prepare our taxes, as my TPC colleague Robert Weinberger reminds us. But for the average person, AI could still better educate them about their own taxes and the filing process.
Thus far, conversations about AI and taxes have largely centered around tax professionals and the IRS. So I asked some family and friends who maintain a significant distance from the world of taxes to see how AI might help them. Their questions and resulting answers suggest the technology can do a lot to build tax literacy.
AI can’t give you tax advice … yet
It would be nice if these advanced tools could seamlessly answer individual tax questions, saving the time of a traditional web search, navigating the IRS website, or spending money on tax preparation services and software. But the examples in my friend group threw cold water on that idea.
One friend working remotely since the start of the pandemic has been missing the free coffee once available at his office before 2020. He asked ChatGPT whether he could deduct the costs of a coffee maker and the coffee he drinks while working from home from his taxable income. The AI model wasn’t so sure: “I am not a tax professional, but… it can be challenging to justify it as a direct business expense unless it is an integral part of your work, such as if you meet clients or conduct business meetings over coffee.” Alas, my friend drinks his coffee alone.
Another offered a bit of a challenge to ChatGPT: “What is the easiest way to deduct $30,000 from business income?” It responded that it “depends on the specific circumstances and tax regulations of the jurisdiction in question” and offered six strategies involving business expenses, depreciation, deductions for self-employed individuals, retirement contributions, the qualified business income deduction, and research and development credits. It recommended consultation with a tax professional to use the strategies correctly.
Lastly, my mother-in-law asked ChatGPT, “What are the best tax-free investments for me to make as a retiree in Rhode Island?” It recommended that she consult with a financial advisor or tax professional and then offered some generic options. Those included investing in municipal bonds, Roth IRAs, 529 savings accounts, and health savings accounts (HSA). She had hoped instead for a recommendation, but ChatGPT would not offer one.
My 16-year-old son uses Snapchat’s My AI chatbot on his phone. Powered by ChatGPT, My AI allows users to customize it and use it to interact with their friends. My son named his chatbot Bernie. He asked, “Do I have to file taxes if I made $5,000 in one year?” Bernie answered, “If you make $5,000 in one year, you may or may not owe taxes depending on your filing status and other factors.”
Bernie’s answer is technically correct, but my son still didn’t know whether he should file taxes. That prompted him to leave the Snapchat app and search the IRS website. He learned that if a person under age 65 earns less than $12,950, they generally do not need to file a federal income tax return. He searched his home state of Michigan’s website and learned whether he must file a Michigan individual income tax return. (Spoiler: He doesn’t.) ChatGPT didn’t have the answer, but it at least helped him find it once his curiosity was piqued.
But maybe AI can help teach us about taxes
Tax administration and policy is not the easiest subject to dive into. But if AI tools can point us in the right direction, it’s at least a useful first step.
One person asked ChatGPT, “Why is tax policy so complicated?” It offered a solid 400-word response, covering tax policy’s need for detail and depth to address various economic and social objectives, evolving regulations, interactions between different taxes at different levels, international considerations, enforcement and compliance, and political considerations. This at least helps solve the mystery of why we don’t currently have the ability to file our tax returns on a postcard.
The most enlightening interaction, though, came from a friend who teaches middle school. When this person asked ChatGPT, “What is the best way to teach seventh graders about tax policy?” the AI tool offered an assortment of interesting ideas, noting that “teaching seventh graders about tax policy can be a challenging but important task.”
The model outlined a plan, starting with why taxes are necessary (to pay for public services like schools, roads healthcare, and more). It also gave ideas for interactive discussions, with prompts like “What are some examples of public services that taxes fund?” or “Why do you think it’s important for everyone to contribute to taxes?”
It went on to suggest a tax simulation game, a review of case studies, scheduling of guest speakers, analyses of news articles, and inclusion of visual aids and infographics as well as assignment of group projects in which students research and present different aspects of tax policy. The model suggested that students could explore topics such as progressive versus regressive taxation, the impact of tax cuts, or the relationship between taxes and public services.
It’s impossible to say what the future will hold when it comes to AI. But I hope we’re all like my son. His interaction with AI prompted him to learn more. That’s heartening when it comes to AI and taxes… and everything else.
The Tax Hound, publishing once a month, helps make sense of tax policy for those outside the tax world by connecting tax issues to everyday concerns. Have a question or an idea? Send Renu an email.
