Some Americans are turning to social media for tax advice, rankling tax pros who point out that some of those tips are misleading or flat-out wrong.
Hashtag taxes — or #taxes — trended on TikTok in the last two weeks, boosting its rank to number three on the financial services chart, surpassing another popular search, #emoney. In the last seven days, content related to taxes and the IRS generated 41 million views on the social media platform.
A quick tour reveals popular videos sharing “secret tax tips” or “deductions you didn’t know.” These range from ways to use your car as a tax expense to deducting 100% of business entertainment expenses in 2022, which is incorrect because only food is deductible.
“It’s frustrating,” Gregory Kling, associate professor at USC Leventhal School of Accounting, told Yahoo Finance. “Because we want to give the best service to our clients.”
‘Not legit for their situation’
In general, more Americans are turning to social media for money advice.
For instance, 53% of respondents in the 2022 Insurance Barometer Study by Life Happens turned to social media for financial advice last year, versus 25% in 2019. Nearly 80% of millennials and Gen Z relied on social media for financial guidance, according to Forbes Advisor.
But tax pros worry that these short clips, even 10-minute videos — the max length allowed on TikTok, oversimplify the ins and outs of tax deductions or credits.
For instance, one influencer shared that he deducted a $125,000 luxury vehicle for business purposes, and another showed a business meal receipt of over $50 he planned to write off. While these could be legitimate deductions for some, there are often caveats that come with the tax benefit.
“A lot of times clients come to me with something that they may have heard on social media that actually may be legit,” Grant Dougherty, an enrolled agent and founder of Dougherty Tax Solutions, told Yahoo Finance. “It’s just not legit for their situation.”
‘G Wagons’ as tax deductions
A common deduction mentioned on social media that is often misleading is the depreciation for sports utility vehicles, according to Dougherty.
“[There are] a lot of misunderstandings about vehicle deductions and what is required to get the deduction — like tracking your miles,” Dougherty said. “Also many go and get a luxury car like a G-Wagon for their business that doesn’t really have much need for a car.”
Vehicles that are eligible for depreciation under IRS guidelines need to have a sound business purpose. This includes proving to the agency that the purchase was ordinary and necessary. According to IRS guidance, ordinary is when something is common and accepted in the taxpayer’s business industry. Necessary is one that is helpful and appropriate for the taxpayer’s trade or business.
“For example, I’m a tax preparer that really only meets clients virtually, so I have no real legit need for a $150,000 car,” Dougherty said, “much less can I find business purposes for driving it.”
‘You can’t even do that’
While some tax content on social media could apply to certain taxpayers, other advice is straight out wrong.
“I’ve seen people talk about doing a 1031 exchange on crypto,” Dougherty said. “You can’t even do that.”
The 1031 exchange is a tax break for investors swapping like-kind properties for a capital tax gain deferral, usually for real estate properties. The process often requires professional help because the qualifications are complicated and involve many moving pieces.
A quick search on TikTok showed a video teaching viewers how to transfer real estate gains to cryptocurrencies tax-free. This video and several others were made in 2022, even though the IRS in 2021 rejected cryptocurrency as a property used in the 1031 exchange.
TikTok, of course, has not started the trend of do-it-yourself tax advice. Incorrect financial advice can pop up on regular Google searches. Kling shared a time when a client took incorrect advice from his online search and made the wrong contribution amount to an SEP-IRA account.
“The client didn’t want to call us and incur a fee, so he just Googled and looked it up on the internet,” said 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 would have called me.'”
Helpful tax resources
While not all taxpayers have access to tax experts, there are other ways to receive 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 go back to IRS.gov,” Dougherty said. “That is going to be the best way to validate something that you’ve actually heard online.”
Other than the IRS website, taxpayers can also find community enrolled agents or go to a local Tax Counseling for the Elderly (TCE) or Volunteer Income Tax Assistance (VITA) office.
“What VITA does is they basically have volunteers to prepare tax returns,” Kling said. “So if somebody can locate a VITA office in their community, they can get their answers there via the volunteers because they’re connected with the IRS.”
Rebecca is a reporter for Yahoo Finance.
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