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Today's AI tax tools — and their vast potentialto reshape the industry

Today's AI tax tools — and their vast potentialto reshape the industry
Tobias Salinger
March 11, 2024

Artificial intelligence is already helping tax-focused financial advisors conduct research and analyze returns for potential opportunities. Developing it for wealth and accounting to the point where it can prepare taxes and answer clients' questions may take more time. 

Advisors and wealth management firms aim to use AI to handle burdensome tasks and identify potential leads for new clients or expanded relationships with existing customers. As big-name firms invest in the technology, tax preparation applications and ChatGPT-like large language models pose the possibility of adding more services to an advisory practice's menu without referring the business to an outside firm. Currently, advisors have begun implementing AI that trawls academic studies and laws for tax strategies and rules and reads through filings to give suggestions for savings, according to five experts who spoke with Financial Planning. 

"You're using AI to be able to understand the tax return," said Andrew Altfest, the president of New York-based Altfest Personal Wealth Management and co-founder of FP Alpha, software that deploys the technology toward planning areas like tax, estate and insurance. The company's technology analyzes returns and displays the impact of ideas like converting traditional individual retirement accounts to a Roth IRA or, in the case of one client of Altfest's advisory practice, how a business

owner could find tax advantages by paying an unmarried life partner for consulting work, he noted in an interview. 

"You get opportunities identified, then you get into the fun stuff," Altfest added."You can save the client almost as much as your entire fee just with one insight like that." 

READ MORE: 9 in 10 advisors have positive view of AI, Arizent study finds 

Venture-capital firms Andreessen Horowitz and Oak HC/FT bet last year on Black Ore, a startup whose Tax Autopilot technology could go further into tax by preparing returns and conducting reviews. The venture investors co-led a fundraising round of $60 million in November for Black Ore. The startup began with tax work, but it intends to move into other financial services such as wealth management and insurance. 

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"While Tax Autopilot is predominantly used today by CPA firms, it can also be used by wealth management firms that offer or are seeking to combine tax services for their clients. Wealth advisors with just a few clicks can now do the preparation work, so that when it goes to the CPA whether it's in-house or external, the taxes are complete and just need to be reviewed," co-founder Eyal Shinar said in an email."We believe the tax and wealth management professions are becoming increasingly intertwined. Clients need a strong understanding of their wealth portfolio to do effective tax planning. Similarly, wealth firms need to ensure they understand the tax implications of their advice to clients. Black Ore's future products in this space will focus on the intersection of tax and wealth management, and make it easier for firms to provide integrated wealth and tax services to their clients." 

Giants of the tax world such as Deloitte Tax, H&R Block and Intuit TurboTax are rolling out their own AI-supported tools as well. The latter two firms' chatbots largely failed test questions posed last week by The Washington Post's technology critic (headline:"TurboTax and H&R Block now use AI for tax advice. It's awful."), but the companies noted that their AI tools are improving and represent only one aspect of their tax services alongside the work of human experts. 

Another giant accounting firm, BDO, unveiled two new tools last year: a data storage and integration collaboration with Microsoft called BDO Tax UserVerse, and a proprietary large language model the company refers to as Chat BDO, according to Daniel Fuller, the firm's tax digital transformation and innovation leader. 

"BDO is leveraging AI and other advanced data analytics in the family office and individual tax space to allow our professionals to focus their time and energy on identifying risks, issues and opportunities, rather than focusing on manually populating data," Fuller said in an email."AI technology from Thomson Reuters helps us streamline the individual and trust tax preparation process by reading relevant tax documents and automatically loading the data to the tax calculation engines. Then, at BDO, our professionals extract and aggregate the data from the tax return software to populate insights and review dashboards for family offices. Having all the relevant information in one place allows the family office and our team to identify issues or planning opportunities in a more efficient, accurate and timely fashion." 

READ MORE: Gloom or boom? Tax pros differ on AI 

A high-net-worth wealth arm of global investment management firm AllianceBernstein, Bernstein Private Wealth Management, deploys technology developed by its parent firm toward information that can aid financial advisors' recommendations, according to Robert Dietz, the firm's national director of tax research. The AI extracts the relevant research from studies that may discuss a topic like how to avoid tax drag in specific types of portfolios without necessarily appearing at the top of a Google search result for that topic, Dietz said in an interview. 

"It's really more about expanding the efficiency and amount of research that we can do. It doesn't replace the researcher," Dietz said."What it allows us to do is go through many more documents a lot


That kind of technology could delve into the Tax Code and recent legislation as well, noted Jacob DuBose, a principal wealth advisor with New York-based Savvy Advisors. The company's "copilot" tool and resources available through Holistiplan's software generate potential investment strategies based on a client's characteristics and provide some guardrails to avoid big tax hits, DuBose said in an interview. The tools add value at a time when wealth management is facing succession challenges and accounting keeps confronting a shortage of incoming professionals, he said. 

"There are too many open desks around, and a lot of the work that is tied to that is pretty manual," DuBose said."There's a lot of work to be found, but not a lot of folks to do that work." 

Rather than becoming wary of learning another new technology, advisors may want to think about the budding "efficiency and how to drive more revenue out of your practice"through emerging tools such as FP Alpha, Altfest said. 

"Now you have a powerful genius assistant to be able to do this type of work for all clients, not just the wealthiest, but all clients," he said."The biggest challenge is that we as advisors have to be able to envision the future of working collaboratively with a tool that allows us to serve our clients differently." 

READ MORE: Don't fear the robots: The case for deploying AI in wealth management 

AI can give more advisors an edge as they work increasingly at the intersection of tax and wealth, two fields that are "going to be swimming together in the same pool" more in the future, DuBose said. 

"In the past, there used to be a dividing line or almost like swimming lanes for financial planning and tax planning," he said."Tax planning should take place throughout the year. The lines between the lanes are disappearing. … As a fiduciary, you should be able to help with comprehensive financial planning more than you have in the past."

Beyond tax preparation, the potential AI applications could include scanning trust documents to create estate-planning strategies or evaluating portfolios to find methods of improving their after-tax returns, according to Dietz. Free public tools like ChatGPT won't jibe well with the need for privacy for client information, but internal research bots are already lending a robotic hand to advisors, he said. 

"It's really about gathering as much perspective as you can from as many different sources as possible, and that's how you come up with insights," Dietz said."There are a lot of different applications, and I think we're far from really understanding where this is going to go."