Edit: To be clear, as a sibling post said, the basic arithmetic is easy enough. It's the tax opinion stuff that is absolutely not deterministic. If your situation is even moderately complex, there's a vast number of ways to describe your deductions, each with different tax implications and multi-year requirements. I'm not talking about being Jeff Bezos, either. Is your spouse an independent contractor? Do you own a home? Do you have stock options? Do you have a home office? These alone are enough to make some pretty creative reporting situations.
I think it's a very common misconception among programmers that the law is a sort of natural language 'program' where you can consistently deduce that x input generate y output.
It sort of is, except that the entire law isn't defined in one place. "Hey, do I have a home office?" Well, "home" is defined over in this regulation, and "home office" is defined over there in that other regulation, and "having a home office" would normally mean this except for this case law that says it can also mean that when these other circumstances apply, and...
These things are knowable, but unless you've spent some time studying it intensely, it's certain that you only know a fraction of the places where the program is written.
If it's helpful, programmers should imagine that it's written in C. At a glance you can tell what something's doing, but once you study it you can find UB all over the place and suddenly it's hard to say what the right answer is until you know the intricacies of the compiler and the target platform. You can't really determine the exact behavior without all that information that lives outside the code. Now, once you have all that, you can surely reason through it all. But how many people actually know all that, or even realize which parts they don't know?
"This is pretty straightforward" is a sure sign of someone who doesn't actually understand it well.
Is your spouse an independent contractor? Do you own a home? Do you have stock options? Do you have a home office? These alone are enough to make some pretty creative reporting situations.
Those questions all have discrete answers, including the much-misunderstood home office. The correct tax outcomes are very much deterministic, in the sense that the same inputs always result in the same outputs. It's simply that there are a lot of options to change the inputs (for example, choosing FIFO vs LIFO for stock sales, using an S-corp vs a sole proprietorship for a personal business).
For example, the home office deduction is only available to individuals who have a home office that is used exclusively for their individual business, not as an employee for someone else's business (the only exception being for flow-through entities where the taxpayer is a shareholder/partner). The "exclusive use" is meant in the all-or-nothing sense. Use your office computer after hours for games? The home office deduction no longer applies. Uses the office space to store personal documents, or really any other activity except for the business activity? The HOD no longer applies. Don't have any income from that business activity you claim are doing in the home office? The HOD no longer applies.
It's simply that enforcement is not deterministic, so people think they get away with a lot of positions that do not survive actual audits. Talk to an IRS agent that handles audits and you'll learn that a failed home office deduction claim is the #2 adjustment to the tax returns of white collar professionals.[1] At a relatively recent tax mixer, IRS agents from the Los Angeles branch office could only recall about a dozen cases in which the home office deduction actually survived an audit, out of thousands, and those taxpayers were extremely rigorous about following the rules to the letter (to the extent that all of them locked their home offices when they were not being used for work).
[1] The #1 reason for adjustments to the tax returns of white collar professionals is attempting to claim business expense deductions without matching business income to deduct against. Technically, the home office deduction is one of these deductions, which is why it is #2 and not #1.
There are also a lot of non-deterministinc choices one can make. Things like carry forward losses or gains, that no algorithm could know. They depend on your personal plans for the future. You can make specific filing choices that have massive consequences on your future. There are choices like 83(b) elections that can save you tens of millions of dollars a decade in the future, contingent on the events after you file.
And there are basic things that shouldn’t be subjective at all but that the IRS refuses to give a clear answer to, like if/how the SALT cap affects deduction for NIIT. There are at least 3 possible interpretations and no consensus.
That's because it's law, and the IRS doesn't get to decide that, courts do.
There are parts of the tax code that mean different things in different parts of the US because of conflicting circuit court decisions that haven't made it to the Supreme Court.
I use to think that. I'm capable of putting numbers in a form correctly. A good tax preparer can point out things like "did you know that your specific commuting pattern entitles you to claim mileage?", or "the law says the way you have your working environment set up at home means you can deduct some of your utility bills", and so on ad infinitum.
Basically, unless you get someone who has a deep knowledge of the law, if your tax situation is non-trivial (see my post above this) then you might be leaving money on the table. It's a terrible, idea to evade taxes. It's a fantastic idea to realize when you're paying more than you're legally required to so that you can fix it.
Ultimately, taxes is just filling out a spreadsheet and doing basic math... but the hard part of taxes is understanding how to fill out that spreadsheet correctly. Doing that requires answering several questions that many tax filers may simply not have the background to understand--I'm always struck whenever answering the question about "do you need to correct your W-2?" is how would I know when the answer is "yes." I can see how AI could be helpful here... at least were not AI plagued with hallucinations.
That said, Intuit's actual business model is convincing millions of people that their taxes are so complicated they need to spend $60 on a program that is just copy-pasting numbers from one document to another.
tbf doing taxes is way more than copy from W2; paste into 1040. There are tax credits. Tax incentives. 1099 income (which a lot of people receive!). Loopholes. So many loopholes.
As far as I understand it, a lot of this guidance can be/has been automated programmatically. I can see how LLMs can become useful for niche scenarios if you feed it *a LOT* of data as they become more accurate.
There are actually very few "loopholes" available to individuals.
What most accountants call "loopholes" are actually just misunderstandings of the tax rules (e.g., the home office deduction, home business expense deductions, hiring family members being some of the biggest), and their clients usually end up paying penalties the IRS if they get audited.
Nah, Free Fillable Forms paired with ChatGPT (free, not even plus) is adequate for the vast majority of the tax population now and none of it is hard. I expect that 2027 is the last year for the tax preparation software companies to still exist.
I asked an LLM (Gemini) about a calculated field in my taxes that was wrong but I couldn’t figure out why and every time it tried to tell me something like “It’s a common glitch for tax software to calculate like this.”
When I did figure out what was wrong and asked if that made sense, it told me I was absolutely right though.
I think people are lucky the IRS fired all their employees this day and age so this work isn’t getting checked as much.
You're being deprived of government services and a sustainable economy because the wealthy are allowed to game the system they've rigged for themselves. I wouldn't call that luck.
Gemini is a pretty bad choice for an LLM. Most people using it are doing so because Google bundled it for free with a couple things, not for its quality.
Serious question: to figure out the answer why did you not go to the IRS website for that field? This is how I ultimately answer any tax questions I have.
This. An important property of tax calculations is being consistently reproducible. In the context of an audit, the calculations don’t need to be accurate per se just precise.
I have a formative story where a large industrial company was counting things for tax purposes using my software. Given the same data and same binary, the count was off by one depending on if it was running on Intel or AMD CPUs. They didn’t care so much what the count was, they just needed it to be the same value at all times in all places so they could defend it in an audit.
The inability to consistently reproduce the value was a bigger liability for tax purposes than small variances in accuracy that fell out of the process.
Intuit has a pretty broad financial software portfolio, not just a tax company.
Also, yes the actual arithmetic at the end should be handled by deterministic code. I doubt anyone, including Intuit, thinks otherwise. But there's a ton of uses for LLMs before you get to 2+2 = 4, explaining concepts, document extraction, understanding the full financial picture, etc.
Kind of feels like you're criticizing a cartoonish idea of AI's place in their products.
You would think arithmetic should be deterministic, but just days ago I received paper mail from IRS saying my tax software computed federal tax underpayment penalty incorrectly, and they are refunding me > $300.
Boy, do I have bad news for you.
Edit: To be clear, as a sibling post said, the basic arithmetic is easy enough. It's the tax opinion stuff that is absolutely not deterministic. If your situation is even moderately complex, there's a vast number of ways to describe your deductions, each with different tax implications and multi-year requirements. I'm not talking about being Jeff Bezos, either. Is your spouse an independent contractor? Do you own a home? Do you have stock options? Do you have a home office? These alone are enough to make some pretty creative reporting situations.
I think it's a very common misconception among programmers that the law is a sort of natural language 'program' where you can consistently deduce that x input generate y output.
Not to detract from your point, but the French tax system is defined as code.
https://rmonat.fr/talk/impots_gallium19/
It sort of is, except that the entire law isn't defined in one place. "Hey, do I have a home office?" Well, "home" is defined over in this regulation, and "home office" is defined over there in that other regulation, and "having a home office" would normally mean this except for this case law that says it can also mean that when these other circumstances apply, and...
These things are knowable, but unless you've spent some time studying it intensely, it's certain that you only know a fraction of the places where the program is written.
If it's helpful, programmers should imagine that it's written in C. At a glance you can tell what something's doing, but once you study it you can find UB all over the place and suddenly it's hard to say what the right answer is until you know the intricacies of the compiler and the target platform. You can't really determine the exact behavior without all that information that lives outside the code. Now, once you have all that, you can surely reason through it all. But how many people actually know all that, or even realize which parts they don't know?
"This is pretty straightforward" is a sure sign of someone who doesn't actually understand it well.
14 replies →
A point echoed by Nilay Patel (who used to be a law professional) here https://www.theverge.com/podcast/917029/software-brain-ai-ba...
Is your spouse an independent contractor? Do you own a home? Do you have stock options? Do you have a home office? These alone are enough to make some pretty creative reporting situations.
Those questions all have discrete answers, including the much-misunderstood home office. The correct tax outcomes are very much deterministic, in the sense that the same inputs always result in the same outputs. It's simply that there are a lot of options to change the inputs (for example, choosing FIFO vs LIFO for stock sales, using an S-corp vs a sole proprietorship for a personal business).
For example, the home office deduction is only available to individuals who have a home office that is used exclusively for their individual business, not as an employee for someone else's business (the only exception being for flow-through entities where the taxpayer is a shareholder/partner). The "exclusive use" is meant in the all-or-nothing sense. Use your office computer after hours for games? The home office deduction no longer applies. Uses the office space to store personal documents, or really any other activity except for the business activity? The HOD no longer applies. Don't have any income from that business activity you claim are doing in the home office? The HOD no longer applies.
It's simply that enforcement is not deterministic, so people think they get away with a lot of positions that do not survive actual audits. Talk to an IRS agent that handles audits and you'll learn that a failed home office deduction claim is the #2 adjustment to the tax returns of white collar professionals.[1] At a relatively recent tax mixer, IRS agents from the Los Angeles branch office could only recall about a dozen cases in which the home office deduction actually survived an audit, out of thousands, and those taxpayers were extremely rigorous about following the rules to the letter (to the extent that all of them locked their home offices when they were not being used for work).
[1] The #1 reason for adjustments to the tax returns of white collar professionals is attempting to claim business expense deductions without matching business income to deduct against. Technically, the home office deduction is one of these deductions, which is why it is #2 and not #1.
There are also a lot of non-deterministinc choices one can make. Things like carry forward losses or gains, that no algorithm could know. They depend on your personal plans for the future. You can make specific filing choices that have massive consequences on your future. There are choices like 83(b) elections that can save you tens of millions of dollars a decade in the future, contingent on the events after you file.
2 replies →
And there are basic things that shouldn’t be subjective at all but that the IRS refuses to give a clear answer to, like if/how the SALT cap affects deduction for NIIT. There are at least 3 possible interpretations and no consensus.
That's because it's law, and the IRS doesn't get to decide that, courts do.
There are parts of the tax code that mean different things in different parts of the US because of conflicting circuit court decisions that haven't made it to the Supreme Court.
I know my own taxes pretty well. I don’t follow the tax code changes but could fill out a 1040 form on my own. Even did for a short time.
I use tax prep software because I do NOT want to worry whether I copied the amount from line C to line K correctly. The IRS forms are a nightmare!
The postscript in PDF should allow something more sane than what we have today in IRS forms, but that’s just wishful thinking.
I use to think that. I'm capable of putting numbers in a form correctly. A good tax preparer can point out things like "did you know that your specific commuting pattern entitles you to claim mileage?", or "the law says the way you have your working environment set up at home means you can deduct some of your utility bills", and so on ad infinitum.
Basically, unless you get someone who has a deep knowledge of the law, if your tax situation is non-trivial (see my post above this) then you might be leaving money on the table. It's a terrible, idea to evade taxes. It's a fantastic idea to realize when you're paying more than you're legally required to so that you can fix it.
The IRS's fillable forms do a perfectly fine job of copying values around and doing the basic arithmetic that they can automate.
No, that's Intuit lobbying.
1 reply →
That’s a true side fact, but that has nothing to do with how the software behaves once you input your answers.
Ultimately, taxes is just filling out a spreadsheet and doing basic math... but the hard part of taxes is understanding how to fill out that spreadsheet correctly. Doing that requires answering several questions that many tax filers may simply not have the background to understand--I'm always struck whenever answering the question about "do you need to correct your W-2?" is how would I know when the answer is "yes." I can see how AI could be helpful here... at least were not AI plagued with hallucinations.
That said, Intuit's actual business model is convincing millions of people that their taxes are so complicated they need to spend $60 on a program that is just copy-pasting numbers from one document to another.
tbf doing taxes is way more than copy from W2; paste into 1040. There are tax credits. Tax incentives. 1099 income (which a lot of people receive!). Loopholes. So many loopholes.
As far as I understand it, a lot of this guidance can be/has been automated programmatically. I can see how LLMs can become useful for niche scenarios if you feed it *a LOT* of data as they become more accurate.
There are actually very few "loopholes" available to individuals.
What most accountants call "loopholes" are actually just misunderstandings of the tax rules (e.g., the home office deduction, home business expense deductions, hiring family members being some of the biggest), and their clients usually end up paying penalties the IRS if they get audited.
1 reply →
You would correct your W2 when the amount you receive wasn't what was reported - this is exceptionally rare.
Nah, Free Fillable Forms paired with ChatGPT (free, not even plus) is adequate for the vast majority of the tax population now and none of it is hard. I expect that 2027 is the last year for the tax preparation software companies to still exist.
There have been free alternatives for years.
People still pay accountants to do their very basic taxes and pay $200 for twenty minutes worth of work.
Why?
For the same reason paid software exists in this space - knowing you have someone else to blame.
I asked an LLM (Gemini) about a calculated field in my taxes that was wrong but I couldn’t figure out why and every time it tried to tell me something like “It’s a common glitch for tax software to calculate like this.”
When I did figure out what was wrong and asked if that made sense, it told me I was absolutely right though.
I think people are lucky the IRS fired all their employees this day and age so this work isn’t getting checked as much.
You're being deprived of government services and a sustainable economy because the wealthy are allowed to game the system they've rigged for themselves. I wouldn't call that luck.
Gemini is a pretty bad choice for an LLM. Most people using it are doing so because Google bundled it for free with a couple things, not for its quality.
Serious question: to figure out the answer why did you not go to the IRS website for that field? This is how I ultimately answer any tax questions I have.
This. An important property of tax calculations is being consistently reproducible. In the context of an audit, the calculations don’t need to be accurate per se just precise.
I have a formative story where a large industrial company was counting things for tax purposes using my software. Given the same data and same binary, the count was off by one depending on if it was running on Intel or AMD CPUs. They didn’t care so much what the count was, they just needed it to be the same value at all times in all places so they could defend it in an audit.
The inability to consistently reproduce the value was a bigger liability for tax purposes than small variances in accuracy that fell out of the process.
Why? What's wrong with some non determism if Intuit foots any mistakes? I am all for AI auto filling taxes where the filer offering takes the burden.
To be honest I'm kinda sceptical that they will be paying fines for you.
Software licenses usually explicitly disclaim all financial damages. I assume Intuit does too (I don't use Turbotax myself).
2 replies →
Intuit has a pretty broad financial software portfolio, not just a tax company.
Also, yes the actual arithmetic at the end should be handled by deterministic code. I doubt anyone, including Intuit, thinks otherwise. But there's a ton of uses for LLMs before you get to 2+2 = 4, explaining concepts, document extraction, understanding the full financial picture, etc.
Kind of feels like you're criticizing a cartoonish idea of AI's place in their products.
You would think arithmetic should be deterministic, but just days ago I received paper mail from IRS saying my tax software computed federal tax underpayment penalty incorrectly, and they are refunding me > $300.