alfaspider wrote: Thu Jan 09, 2025 8:49 am
Walkure wrote: Wed Jan 08, 2025 9:01 pm
Is that really because AI isn't up to the task or is it more because the IRS is deliberately vague/high-level in its interpretation of tax law, resulting in lots of gray areas where, in the absence of a private letter ruling, it essentially comes down to a judgment call?
No, it's because the AI isn't up to the task. The AI will sometimes get it wrong even when the tax code says something in black and white.
And part of the reason is that the AI is only as good as the information it gets. If an AI were built to specifically understand the language of the tax code, and use only the tax code as a source, it would get the right answers to things that are in the tax code, but that isn't how it is likely to work.
An example of a problematic question: "I am single, and my only income is $30,000 IRA withdrawals and $20,000 Social Security. How much of my Social Security is taxable?" A large number of sources on the Internet have the incorrect answer that 85% of your SS is taxable in this situation, and AI might pick up on this. Even the text of IRS Publication 915 says, "up to 85% of your SS may be taxable", so the answer could be, "Up to $17,000 could be taxable," which is misleading because the correct answer, while less than $17,000, is known.
The correct answer: The relevant income (non-SS plus half of SS) is $40,000. For every $1 between $25,000 and $34,000, 50 cents of SS is taxable, a total of $4500. For every $1 over that, 85 cents of SS is taxable, a total of $5100. Thus the correct total is $9600. There is a worksheet in IRS Publication 915 which gives this answer.
And even that neglects a question which a human accountant might also overlook: were any of the IRA contributions non-deductible? If so, not all of the $30,000 of IRA withdrawal is taxable. If the IRA is $500K with a $50K basis, then only $27,000 of the $30,000 is income, and that would also reduce the taxable SS to $7050.
