Why You Shouldn't Use AI for Tax Advice

While Artificial Intelligence (AI) offers powerful tools for business efficiency, it is not a reliable substitute for professional, human tax advice. The inherent complexity of tax law, combined with AI's potential for inaccuracy, creates significant risks for individuals and businesses who rely on it for high-stakes financial decisions.

Why You Shouldn't Use AI for Tax Advice

Artificial Intelligence can be a transformative asset for a modern business. It can streamline customer service, automate operational processes, and provide insightful data analysis. However, when specific, tailored, and legally compliant answers are required, AI is not the ideal solution, especially in the critical area of tax.

Recent surveys show a concerning trend, with a significant number of people admitting they would consider using AI tools like ChatGPT to help with their tax returns. While the temptation for a quick, free answer is understandable, the risks associated with this approach are substantial.

Below are four key reasons to be wary of using Generative AI for tax advice.

1. Tax Advice Must Be Nuanced and Personalised

Tax law is incredibly complex, and its correct application depends entirely on an individual's or business's unique financial situation. A generic AI prompt is unlikely to capture all the variables required for accurate advice, such as income sources, investment history, residency status, and long term financial goals. AI struggles to provide the nuanced counsel that is tailored to these specific circumstances, which can lead to generic, unhelpful, or incorrect recommendations.

2. Tax Law is Local and Ever Changing

Tax legislation varies significantly from one country to another and is subject to frequent updates and amendments. An AI model, often trained on broad, global data, may lack the up-to-date, localised information necessary to provide compliant advice for your specific jurisdiction. It could easily provide guidance based on US tax law when you require advice for New Zealand, potentially leading to serious legal and financial breaches.

3. AI is Prone to 'Hallucinations' and Factual Inaccuracy

Generative AI can produce entirely false yet highly confident responses, a phenomenon known as ‘AI hallucinations’. It can invent tax credits, misinterpret legislation, or cite non-existent legal precedents with complete authority. Relying on such falsehoods for tax decisions could result in an audit, significant penalties, or costly disputes with the tax authorities.

4. Tax Professionals Provide Strategic Judgement

A human tax professional combines technical knowledge with the essential strategic judgement needed to navigate complex financial situations. They can understand your broader objectives, assess your risk tolerance, and provide proactive planning advice that aligns with your goals. AI cannot replicate this human touch. It can only answer the question it is asked, whereas a professional can identify the questions you should be asking, potentially saving you money and preventing future problems.

While there are many areas where AI can be a huge boost to your business, professional advice remains indispensable for complex and high-stakes matters. When it comes to tax, the human touch is still your best and safest option.