Some Americans turn to social media for tax advice, teasing tax professionals who point out that some of these tips are misleading or downright wrong.
Hashtag taxes — or #taxes — have been trending on TikTok for the past two weeks, boosting its rank to number three on the financial services chart and surpassing another popular search, #money. In the last seven days, content related to taxes and the IRS generated 41 million views on the social media platform.
A quick tour highlights popular videos sharing “secret tax tips” or “unknown deductions.” These range from ways to use your car as a tax expense to being able to deduct 100% of business entertainment expenses in 2022, which is incorrect as only groceries are deductible.
“It’s frustrating,” Gregory Kling, an associate professor at USC Leventhal School of Accounting, told Yahoo Finance. “Because we want to offer our customers the best service.”
The logo of the TikTok app can be seen in this illustration taken on August 22, 2022. REUTERS/Dado Ruvic/Illustration
“Not legitimate for their situation”
In general, more and more Americans are turning to social media for advice on money.
For example, 53% of respondents in Life Happens’ 2022 Insurance Barometer Study turned to social media for financial advice last year, up from 25% in 2019. Nearly 80% of Millennials and Gen Z reportedly relied on social media to get financial advice Forbes advisors.
But tax professionals fear these short clips, even 10-minute videos — the maximum length allowed on TikTok — oversimplify the details of tax deductions or credits.
For example, one influencer shared that he stole a $125,000 luxury vehicle for business purposes, and another showed a receipt for a business meal worth over $50 that he was about to rip off. While these might be legitimate deductions for some, there are often caveats that come with the tax benefit.
“Often clients come to me with something they may have heard on social media that might actually be legitimate,” Grant Dougherty, a registered agent and founder of Dougherty Tax Solutions, told Yahoo Finance. “It’s just not a legitimate situation for them.”
“G-Wagen” as a tax deduction
The new Mercedes G-Wagon is unveiled at a press event on the eve of the 2018 North American International Auto Show press preview in Detroit, Michigan January 14, 2018. (GEOFF ROBINS/AFP via Getty Images)
A common deduction mentioned on social media, and one that’s often misleading, is sport utility vehicle depreciation, according to Dougherty.
“[There are] Lots of misconceptions about vehicle deductions and what it takes to get the deduction — like tracking your miles,” Dougherty said. “Also, a lot of people buy a luxury car like a G-Wagon for their business that doesn’t really need much for a car.”
Vehicles that qualify for write-off under IRS guidelines must have a sound business purpose. This includes proof to the agency that the purchase was customary and necessary. As per IRS guidelines, ordinary is when something is customary and accepted in the taxpayer’s line of business. What is needed is one that is helpful and appropriate to the taxpayer’s trade or business.
“For example, I’m an accountant who really only meets clients virtually, so I have no real legitimate need for a $150,000 car,” Dougherty said, “let alone can I find a business purpose for driving it.”
‘You can’t even do that’
While some social media tax content might apply to certain taxpayers, other advice is just plain wrong.
“I’ve seen people talking about doing a 1031 exchange on crypto,” Dougherty said. “You can’t even do that.”
The 1031 exchange is a tax benefit for investors who exchange like properties for a deferral of capital tax gains, usually real estate. The process often requires professional help as the qualifications are complicated and involve many moving parts.
A quick search on TikTok revealed a video teaching viewers how to transfer real estate gains tax-free into cryptocurrencies. This video and several others were filmed in 2022, although in 2021 the IRS rejected cryptocurrency as a property used on the 1031 exchange.
Of course, TikTok didn’t start the do-it-yourself tax advice trend. Regular Google searches can turn up incorrect financial advice. Kling reported a time when a client took the wrong advice when searching online and deposited the wrong amount of contribution into a SEP IRA account.
“The customer didn’t want to call and pay a fee, so they just googled and looked it up on the internet,” says Kling. “What he read on the internet was the general answer but not specific to him, and I’m sure I said something like, ‘I wish you’d called me.’”
Helpful tax resources
(Photo: Getty Creative)
While not all taxpayers have access to tax experts, there are other ways to get credible and reliable financial advice this filing season. One of the most common resources is the IRS website.
“You should always take what you hear and come back to IRS.gov,” Dougherty said. “That’s going to be the best way to validate something you’ve actually heard online.”
In addition to the IRS website, taxpayers can also find community registered agents or contact a local Elderly Tax Advisory Board (TCE) or Voluntary Income Tax Assistance Bureau (VITA).
“What VITA does is they basically have volunteers doing tax returns,” Kling said. “So if someone can locate a VITA office in their community, they can get their answers there through the volunteers because they are connected to the IRS.”
Rebecca is a reporter for Yahoo Finance.
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