Any advice can seem solid when it’s a soundbite. Tax tips via social media are no different. About 80% of young professionals today admit to following financial advice from sources like Facebook, Instagram and TikTok. You may have been lured in yourself.
It’s gotten to the point where the IRS has issued warnings about social media tax tips. Some of the worst offenders are simply ill-informed or leave out important aspects of how the tax-savings strategies should be followed or who, exactly, can take advantage of them. Others are straight-up scams.
Here are some of the most common traps shared by the IRS and others. If you have young adult children, colleagues or others in your life filing taxes on their own, forward this to them. Those without a reputable CPA on their side are most susceptible.
Business expenses that aren’t: Form a company and buy a car through it! Write off your computer, electronics and home office! Expense the clothes and makeup necessary to make you look good as you earn a living! The list of quick-serve tax tips from social media influencers who have “figured it out” is endless. But these soundbites don’t tell the whole story. Most taxpayers cannot legitimately write off purchases like cars, electronics and personal items. Doing so, especially when you don’t own a legitimate operating business entity that maintains separate accounting records, is a sure-fire way to be flagged by the IRS.
Mishandling an S Corp: Influencers have asserted that every business owner should turn their business into an S Corp so that they can save on taxes. While an S Corp can be beneficial for some, it comes with responsibility. It has numerous requirements (who can be owners, number of stockholders, etc.) and needs additional tax prep and paperwork in addition to you (and anyone who works for you) being added to the payroll and getting paid a reasonable salary. Because of this, we recommend that someone considering an S Corp election work with a reputable CPA who knows the requirements and how to fulfill them.
Sharing the wealth: Hiring family to work for your business is great. It’s something we love to tout. But those family members must be doing real jobs and they must be getting paid reasonably for their work. Paying your 10-year-old $12,000 to maintain the books or be your office manager won’t cut it. And in case you heard the social media rumors that pets can be written off as guard dogs or emotional support animals to you and your staff, think again.
W-2 schemes: Some popular tax tips are 100% fraud. These include W-2 schemes that the IRS has pinpointed as being circulated on social media. They involve “scam artists [suggesting] people make up large income and withholding figures, as well as the employer it’s coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund—sometimes as much as five figures—due to the large amount of withholding.” Fraudulently filling out credits for sick leave and family leave and inventing household employees to do the same have also been spotted by the IRS.
Form 8944 for hardships: This form is used by tax professionals requesting a waiver to file tax returns on paper instead of electronically. It’s not to be used by taxpayers to receive a refund from the IRS or to avoid tax bills, as some bizarre social media claims assert.
The Augusta Rule: We brought you a story in 2023 about a TikTok scheme that sent a group of business owners to Tax Court. The medical professionals owned several Planet Fitness centers together and held meetings at each other’s homes. That’s fine, but then they decided to take a combined $290,900 in tax deductions for the use of their homes as rental income, invoking what’s called the Augusta Rule. It didn’t work.
The bottom line: Never act on general tax tips—even from this website—without consulting a tax professional directly. Online and social media tax advice can give you ideas and inspiration, but it’s up to you to decide what fits your situation and circumstances. Ignore THAT tip, and you may be answering to an IRS agent or, worse yet, Tax Court. Feel free to contact us with questions.
Photo from 123rf.com
