Welcome to Beyond the 10-Key, a regular article discussing powerful and unique ways to utilize AI in the tax, accounting, and financial services industry. With the influx of new AI-based platforms and the ease at which these tools can be used, hardly a day goes by where a typical conversation doesn’t migrate to how AI can improve our processes, client interactions, and more.
Topic: Using AI to Help Interpret Those Complicated K1’s
Let’s be honest for a moment. We all pause when we receive that K1 and take a heavy breadth before diving in. The complexities of passthrough entities can require extra time to manage, whether we are dealing with S Corporations, Partnerships, Trusts, Estates, or similar. More so, we are also challenged with the fact that many tax professionals who generate K1’s do not fully understand them and may just accept the software calculations. Don’t worry, this isn’t a conversation about Circular 230….I promise.
While we may understand how to correctly apply the K1 contents, we may not always have a clear and solid way to explain the document to our clients. And if your clients are similar to mine, they don’t always understand how the passthrough documents impact their personal returns.
One addition we make to our prompt for this is a line-by-line return mapping just to assist our preparers by confirming where each line of content form the K1 should be placed.
This is one prompt where you will typically receive a better response when using a Higher / Professional Tier, but the cost is a significant bump. If you do not have this tier, just spend a bit more time reviewing the content for accuracy.
The Basic Process
You can perform the similar analysis using the standard interface in ChatGPT, Gemini, CoPilot, or any of the dozens of other tools. No matter the tool or platform, the process is pretty much the same and this week is much simpler than last:
We export the K1 we generate, or use the K1 provided by the client, and perform a basic redaction. Our redaction process will be discussed another week. Then, use a prompt similar to below. Note that the prompt will shift by platform and as new or different version are released. You should tweak and adjust to your needs.
Assuming the role of an experienced tax professional and accountant, you provide thorough analysis of financial document review and specialize in complicated pass-through income scenarios related to K1 content.
Review the attached K1 for an S Corporation return. The client is a relatively new business owner and does not always understand the impact of how business decisions impact their personal tax return.
Analyze the attached document and draft the following:
1.) A high-level response to provide a brief explanation of the K1 and its impact on their personal income tax return.
2.) A thorough, detailed response summarizing the K1 for the client and providing a high-level line-by-line summary.
3.) A detailed explanation for a technical tax professional to help them explain the K1 to their client.
4.) Based upon the entire document, highlight any potential numbers or content that may be inaccurate.
Provide citations where possible. Please humanize all of your responses to a 10th grade level of comprehensive and speech. Additionally, think about your responses a second time prior to creation. Finally, if anything is unclear, please ask questions.
Given that we use an API, we format the returned response into a clean PDF. You could simply modify the prompt to request the response in a formatted version to your layout and liking. And, obviously, once we receive the response, we still review it for accuracy (but that is a conversation for another day).
Sample Output
While the output is comprehensive, it is also, quite long. Here are some sample outputs you may receive:
Reminder that the prompt is thinking a second time:
Explanation of High-Level Process
Review and Verify Return Mapping and Explanations
Review and Verify Return Mapping and Explanations
This is just partial output, but you can see the analysis is detailed and can provide significant insight.
What Would You Do?
We hope you are enjoying Beyond the 10-Key. Now, we would love to hear your thoughts? How would you adjust the prompt for your needs?
Thanks so much!
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