How to Use AI for Tax Research Effectively

Introduction

Whether it's Google’s Gemini, OpenAI’s ChatGPT, or dedicated tax research software, professionals are increasingly turning to AI for quick answers. Unfortunately, many run into trouble by using AI incorrectly.

Lawyers have cited fake cases generated by AI hallucinations. In accounting, I see clients asking: Where should I form my entity? Can I deduct this expense? These are valid questions, but if answered incorrectly, the consequences can be serious.

As AI becomes more powerful and accessible, clients will rely on it more instead of hiring a tax professional. That can be useful, but it also creates risks.

The Problem

AI can save accountants time by handling routine questions. But when used carelessly, it produces hallucinations, outdated information, or incomplete answers.

That’s why I developed a process for using AI in tax research. It minimizes errors, increases accuracy, and ensures that answers are supported by authoritative sources. If you’re going to use AI, it’s worth learning how to do it right.

How I Use AI for Tax Research

Step One: Select the Right Model

If you’re using ChatGPT, always choose the thinking model.

ChatGPT-5 offers three modes: auto, instant, and thinking. Auto may default to instant, which is faster but more prone to errors and outdated data. The thinking model is slower but more reliable, drawing from better sources and producing fewer hallucinations.

For research, accuracy matters more than speed.

Step Two: Write Better Prompts

AI gives better answers when you guide it. Instead of asking a vague question like:

“Are meals deductible in a foreign country?”

Be specific:

“Are meals deductible in a foreign country? Please only use authoritative sources such as IRS.gov, Cornell Law, or tax court cases. Cite exact sentences with page or section references. Do not use blogs, videos, or non-authoritative content.”

This approach forces AI to stay within reliable sources and provide verifiable answers.

Step Three: Verify the Answer

Even with the right model and prompt, AI can still be wrong — or you may be asking the wrong question.

Example: “Where should I form my LLC to pay the least taxes?”

AI might suggest Wyoming, but in reality, you’re taxed based on where you do business. If you operate in New York, you’ll pay New York taxes regardless of where the LLC is formed. The Wyoming entity adds cost without tax savings or real asset protection.

Always cross-check AI’s citations and confirm them against authoritative sources. This ensures you’re asking the right questions and applying the correct rules.

Conclusion

AI is a powerful tool for tax research, but only when used carefully. By selecting the right model, writing precise prompts, and verifying answers, you can reduce errors and improve accuracy.

This process helps you get reliable answers without always needing to escalate questions to your CPA.  And if you’re an accountant in a firm, then you can now answer questions better without needing to escalate to the partner, or manager, senior, etc. — while still having solid documentation to back up your position.

If you’d like guidance on using AI for your accounting, feel free to book a consult and we can talk about it.

Stay smart and take care.