Artificial intelligence is poised to significantly influence how Americans tackle their 2025 tax returns, but experts warn of potential pitfalls alongside the convenience. While AI-powered tools are becoming increasingly sophisticated, offering assistance with deduction categorisation, form identification, and even credit suggestions, taxpayers must be aware of emerging risks.
Eric Croak, a Certified Financial Planner, highlights AI’s shift from a behind-the-scenes utility to a direct interface for taxpayers. However, this increased accessibility brings new challenges, ranging from accuracy concerns to sophisticated scams.
Three key risks demand attention as the tax season approaches: increased IRS scrutiny, potential inaccuracies stemming from new tax laws, and a rise in AI-driven scams.
The Internal Revenue Service (IRS) is bolstering its capabilities with AI, enhancing its ability to detect income discrepancies in real-time. The Discriminant Information Function (DIF), the system used to identify returns for audit, has been upgraded. AI algorithms now cross-reference reported income against a taxpayer’s digital footprint, drawing data from banks, public records, and even social media activity to assess whether lifestyle aligns with declared income.
While these measures primarily target high earners and large corporations, the increased vigilance could lead to a rise in IRS notices for a broader range of taxpayers.
One of the most significant concerns is the potential for inaccuracies, particularly in complex tax scenarios. While AI tax platforms may present information authoritatively, they are not infallible. Croak advises caution when dealing with situations beyond a simple W-2, such as multi-state income, Roth conversions, or cryptocurrency rewards.
The 2025 tax season introduces significant changes from the One Big Beautiful Bill (OBBB) law, including tax exemptions on tips and overtime. Over-reliance on AI without careful verification could result in penalties for misapplied credits or excessive deductions.
Scammers are increasingly leveraging generative AI to perpetrate fraudulent activities and gain access to sensitive data. Phishing attempts via email and SMS are becoming more sophisticated, with AI generating convincing tax-related content. Voice cloning and AI-generated videos are also being deployed to impersonate accountants or IRS representatives, or to create fake IRS or tax software websites.
These scams often involve threats of legal or financial consequences for unpaid taxes, or requests to visit websites designed to steal personal information and facilitate identity theft.
While AI presents risks, it can also be a valuable tool for tax preparation. Experts recommend using AI as an assistant to organise documents and answer common tax questions. However, it is crucial to remember that AI is not foolproof, particularly given the new provisions introduced by the OBBB law.
Using AI to file taxes does not automatically trigger an audit, but errors, underreporting, or ineligible deductions resulting from AI-driven mistakes can increase the likelihood of scrutiny. The IRS prioritises anomalies and income mismatches when determining the need for an audit.
The IRS is indeed expanding its use of AI to analyse tax returns and reduce the tax gap. Recent technological advancements enable the IRS to compare reported income with data from third-party sources, such as banks and e-commerce platforms, to swiftly identify discrepancies or lifestyle mismatches.
Key Considerations for 2025 Tax Returns
| Risk Area | Description | Mitigation Strategy |
|---|---|---|
| Increased IRS Scrutiny | AI-powered systems enhance the IRS’s ability to detect income discrepancies. | Double-check all income reporting and ensure accuracy. |
| AI Inaccuracies | AI platforms may provide incorrect advice, especially in complex situations. | Verify AI recommendations with a qualified tax professional, particularly for multi-state income, Roth conversions, or crypto rewards. |
| AI-Driven Scams | Scammers use AI to create sophisticated phishing attempts and impersonations. | Be wary of unsolicited communications and verify the authenticity of any requests for personal information. |
