Look, I get it. You’re running a business, wearing seventeen hats, and somewhere between answering emails and chasing invoices, someone told you that ChatGPT could handle your bookkeeping and taxes. Honestly, I understand the appeal. It’s right there, it sounds confident, and it doesn’t charge by the hour.

But as a CPA and someone who genuinely wants to see business owners thrive, I want to warn you that, while AI is a powerful tool, it also can get tax and accounting questions wrong in ways that can cost you real money.

Let me show you what I mean. And more importantly, what to do about it.

AI’s Accuracy Problem

DualEntry, an accounting software company, recently ran a large-scale benchmark test evaluating 19 leading AI systems, including ChatGPT, Gemini, and Claude, across 101 real-world accounting workflow tasks. They tested things like classifying transactions, creating journal entries, reconciling bank accounts, and generating financial reports. Actual accounting work.

The best-performing model, OpenAI’s GPT-5.4, scored 77.3% accuracy. That sounds decent until you realize that’s one wrong answer out of every four tasks. The second-place model scored 66%. Most models came in below 65%.

Think about that. If you hired an employee who got one in four things wrong, you’d find a new employee, right? But when AI does it, the answer still arrives in a friendly, confident tone with zero indication that it might be completely off base.

That’s the core issue. AI produces plausible-sounding output. The IRS requires technically correct tax returns. Those are very different things.

Where AI confidently leads you astray

Here are a few examples of the kinds of questions small business owners ask AI every day. In each case, the answer sounds reasonable. In each case, the consequences of acting on it range from “costly” to “audit bait.”

Q: Can I deduct my home office?

AI says: “You can deduct a portion of your mortgage interest, utilities, and insurance based on the square footage you use for business.”

That answer is technically true, but the devil is in the details. The IRS requires exclusive and regular use of that space for business. AI won’t ask whether your home office doubles as a guest room. It won’t remind you that the simplified method caps your deduction at 300 square feet. It won’t flag that those costs still shouldn’t run through your business like other business expenses. It just gives you the surface-level answer and calls it a day.

Q: Should I hire an independent contractor or an employee?

AI says: “If you pay someone as a contractor, you don’t have to withhold taxes or pay payroll taxes. Just send a 1099-NEC at year end.”

The IRS uses a multi-factor test based on behavioral control, financial control, and the nature of the relationship. Getting this wrong potentially means years of back payroll taxes, penalties, and interest. AI answers this question without knowing anything about your actual working arrangement.

Q: Can I write off my vehicle as a business expense?

AI says: “You can deduct your business mileage using the standard mileage rate of 67 cents per mile.”

Close, but the standard mileage rate changes annually. For 2026, it’s 70 cents per mile. AI doesn’t always have current figures.

More importantly, it can’t tell you whether the actual expense method would save you more money for your specific vehicle and usage pattern. It likely won’t give you a heads-up that you can’t deduct commuting miles between your home and workplace. And it definitely won’t remind you that the IRS expects a contemporaneous mileage log. “I tracked it in my head” isn’t going to cut it.

Q: Can I deduct meals and entertainment?

AI says: “Business meals are 50% deductible. Entertainment expenses are fully deductible.”

Entertainment expenses have not been deductible since the Tax Cuts and Jobs Act went into effect in 2018. That’s not a recent change. It’s been the law for seven years, but AI platforms still regularly get this wrong. If you’ve been deducting tickets to sporting events or client outings as business entertainment, you may have an issue on your hands.

Business meals are 50% deductible if:

• You or an employee is present for the meal
• The meal isn’t lavish or extravagant based on the circumstances

Also, you have documentation showing the amount, date, location, business purpose and the names of attendees.

Q: How much can I contribute to a retirement account as a self-employed person?

AI says: “The contribution limit for an IRA is $6,500 per year.”

For starters, that number is stale. The IRA limit for 2026 is $7,500, plus an extra $1,100 in catch-up contributions if you’re 50 or older, bringing the total to $8,600. AI models are frequently a year or two behind on figures like this because these limits are adjusted annually, and the model’s training has a cutoff date.

But there’s a bigger issue. A traditional IRA is often the wrong choice entirely. If you’re self-employed, you have access to retirement plans with much higher limits, like a SEP-IRA, Solo 401(k), or defined benefit plan. Contributing a much lower amount to a traditional IRA potentially leaves tens of thousands of dollars in tax deductions and compounding retirement savings on the table every single year.

So, should you never use AI for your finances?

AI is genuinely useful when you know what it’s good at and where it falls short. I truly believe that AI is our future, and as business owners, we need to be using it to our advantage!

It might be great at drafting invoice templates, explaining accounting concepts in plain language, or helping you organize questions for your accountant. These are low-stakes tasks where AI shines because the output doesn’t go directly to the IRS.

But think of AI as a research starting point, not a final answer. Treat it like a knowledgeable friend who didn’t go to school for accounting. They might have some good tips, but you wouldn’t rely on them to file your return.

We love it when our clients send us blurbs from AI outputs on accounting topics and we get to explain where AI got it right and where it is wrong. It’s a great starting point for research.

Let’s make sure your books are ready for anything

Owning a business takes guts and commitment, and you deserve protection. Don’t let a 77%-accurate chatbot be the thing that stands between you and a clean set of books and tax strategy.

Use AI for what it’s good at. Bring in a professional for the rest.

Whether you’re behind on bookkeeping, preparing for tax season, or just want a second set of eyes on your numbers, contact NewWay Accounting.