As Americans prepare to file their 2025 taxes, artificial intelligence (AI) is expected to play a major role.
“AI has expanded from being just a backend tool used in tax platforms to now serving as a front-end ‘tax assistant’ that millions of taxpayers interact with directly,” said Eric Kroc, CFP and president of Ohio-based Kroc Capital, via email. “These AI capabilities can automatically classify deductions, identify missing forms, and even suggest potential credits you may have forgotten about.”
However, with these AI-driven developments come new risks and considerations for taxpayers. From accurate filling to algorithmic searches and even fraud, here are the biggest challenges to watch out for.
Watch for additional scrutiny of income by the Internal Revenue Service (IRS), potential mistakes with changes to the One Big Beautiful Bill (OBBB) rule, and the rise of deep-pocketed fraud schemes.
Updates to the Discrimination Information Function (DIF) — a system the IRS uses to decide which tax returns come up for audit — make it easier to find and flag income discrepancies in real time.
With AI and data matching tools, the IRS can compare reported income with:
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W-2s: Used for income
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Form 1099-DA: Used to earn cryptocurrency
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Form 1099-K: Used to earn from payment apps, such as Venmo or PayPal
Instead of manual review, the IRS uses AI to cross-check your reported income against your digital footprint, collecting data from banks, public records, and even social media to see if your lifestyle matches your tax return.
While many of these measures target high-income and large companies, they can generate more IRS notices than ever before.
Read more: Americans are using AI for financial advice more than you think
Sometimes AI can get it wrong, especially for complex tax scenarios.
“AI tax platforms can sound incredibly authentic while being completely wrong,” Crook said. “If your tax situation is more complicated than a W-2, I would double-check AI’s recommendations, especially around multi-state income, Roth conversions, or crypto stake rewards.”
Accuracy is especially important for the 2025 tax season, which introduced two major tax provisions from the OBBB Act – no tax on tips and no tax on overtime.
Relying entirely on AI to file your taxes may result in penalties for misapplying credits or over-deducting.
Scammers are increasingly using artificial AI to fake transactions or access sensitive data.
While email and SMS phishing are not new, they are becoming more sophisticated, using AI to create persuasive tax-related content. Scammers also use voice cloning and AI-generated videos to impersonate accountants or even IRS representatives, or create fake IRS or tax software websites.
These cyber threats may claim that the filer has not paid their taxes and that they face legal or financial damages if the payment is not made immediately. Others may ask you to visit a website, which can then access your personal information and steal your identity.
While AI may bring risks to the 2025 tax season, there are steps you can take to ensure your returns are accurate and secure.
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Complete additional income documentation: For example, on a 1099-K, a gift or payment can be mislabeled as income, which can make a difference. Keep statements from third-party apps like Venmo or PayPal and make sure transactions are categorized appropriately.
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Rely on the professionals for complex tax situations: Rely on the advice of a certified public accountant (CPA) or other tax professional for complex returns or applying new OBBB deductions. You can also search the IRS Interactive Tax Assistant for authentic and accurate filing assistance.
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Keep your information private: Never respond to text messages, emails, or phone calls from agencies asking for money or personal information, even if they claim to be the IRS. Go directly to IRS.gov if you have questions – you can even set up an Identity Protection PIN for added security.
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Add direct deposit information for faster refunds: To help combat fraud and payment errors, the IRS is completely eliminating paper checks. Without updated bank account information, your refund may be delayed by at least six weeks.
You can use AI to help you file your taxes. Many experts recommend using it as an assistant to help organize documents or answer commonly asked tax questions. But AI is not 100% accurate. There are risks if you rely solely on filing, especially given the new provisions in the OBBB Act.
While using AI to file your taxes doesn’t trigger an audit, it can increase your chances if it results in errors, underreporting, or deductions you don’t qualify for. The IRS looks for inequality and income inconsistencies, among other factors, to decide whether an audit is warranted.
Yes, the IRS is increasingly using AI to analyze tax returns and close the significant tax gap between what is owed and what is paid. Recent updates to IRS technology make it easy to compare reported income from third parties (such as Venmo, PayPal, banks, and e-commerce websites) to quickly match differences or lifestyles.
