Ignore This Tax Tip From TikTok
When it comes to managing your finances and taxes, it would be wise to take TikTok’s advice with a grain of salt . Some tax loopholes may go viral , but that doesn’t mean they’re right for your specific tax situation.
TikTok’s short video format allows for the simplification and embellishment of complex topics such as tax planning. Many videos boil down the nuances of tax strategies to a few misleading sentences. Let’s take a look at some TikTok tax tips that have gone viral but could potentially lead people astray.
Forming an LLC to deduct personal expenses
Some videos claim that you can form a limited liability company (LLC) to deduct personal expenses such as your mortgage, car payments, and even grocery bills as business expenses to lower your taxes.
While an LLC can provide some tax benefits, simply creating one won’t magically allow you to write off all of your personal expenses. There are strict rules regarding what is considered a legitimate business expense. Improperly deducting personal expenses can land you in trouble with the IRS.
We hire our children
Other videos suggest that business owners should hire their children and pay them a salary as employees. This is said to allow the child to contribute to a Roth IRA using their “earned income.”
While it’s true that only earned income can be contributed to a Roth IRA, hiring your children has very specific requirements. The work they do must be legal and age appropriate, and the pay must be commensurate with the work performed. Simply placing your children on the payroll as a tax workaround could be considered fraud.
Decommissioning your Range Rover
As I explained last week , another viral legal “tax loophole” claim advises people to deduct the cost of a luxury car like a Range Rover or Mercedes-Benz G-Wagon from their taxes.
The truth is that under IRS Tax Code Section 179 , businesses may be eligible to write off a G-Wagon if it is used for business purposes at least half the time. Section 179 allows businesses to deduct the full cost of certain assets, such as vehicles, in the year they are placed in service, rather than amortizing the costs over several years. But there are very strict requirements. Additionally, there are limits on the deductible amount for luxury vehicles, which in 2023 exceeds $19,800 for cars and $20,500 for trucks and vans.
Bottom line
When it comes to complex topics like these (or anything tax-related in general), don’t rely on short videos from non-professionals. Poor tax strategies can unintentionally cost you much more in penalties, interest, and fees down the road.
Unless a TikTok video is from a certified tax professional and provides a general overview of tax concepts, take it with a grain of salt. It is best to consult with a qualified tax professional who can review your specific situation and provide you with legal and tailored advice. What makes a good viral video rarely makes for good tax planning.