It’s tax season and the TikTok tax hack crowds are out in full force, doling out questionable tax avoidance strategies.
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“We’ve had many clients, especially business owners, come to us with ideas they’ve seen on social media,” said Kyle Mostransky, founder of Mostransky & Associates. “The information online may be partially correct, oversimplified, or completely misleading.”
It’s always a good idea to consult with a trusted tax professional who understands your situation. Read on to see which piece of tax advice could be a smart money move in some circumstances.
Tax Hack #1: Content creators can write off anything they use regularly for their content, including clothing and accessories.
It’s true that 1099 contractors and others who file as self-employed can write off costs related to the tools they need to run their business.
But the IRS takes the rule for “ordinary and necessary” business expenses very seriously, warned Gene Bott, CPA, tax advisor and partner at Tax Hive.
“Content creators can easily claim purchases used to create their content, such as cameras, editing software, lighting equipment, and similar items. But they run into problems with items that fall into gray areas or are really for personal use.”
These disallowed areas often include purchases like clothing, make-up, professional manicures or, as seen in this YouTube video, luxury watches.
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Tax Hack #2: Collect old scratch-offs from garbage cans or local convenience stores to claim the gambling loss.
“Going through the garbage to collect evidence of losses that weren’t yours is unacceptable for several reasons,” Bott said.
It constitutes intentional fraud and could come with big penalties if you get caught. When the IRS knows about these kinds of TikTok tax hacks, it raises red flags for anyone claiming gambling losses.
“It wouldn’t take much for the IRS to require you to produce receipts proving you purchased those tickets,” Bott explained.
He pointed out that gambling losses can only be claimed to the extent of wins. If you gamble frequently, you’ll want to maintain a journal of your wins and losses, including dates, times and locations, according to the IRS website. Only then can you write off losses to offset gains.
Tax Hack #3: Business owners and self-employed individuals can pay their children and deduct the pay as a business expense.
Unlike the other two hacks, which are too much of a stretch to be considered legal tax avoidance, Mostransky and Bott said that hiring your own children to work in your business can be a valid tax strategy if used properly. Keep careful records and ensure that you’re paying a reasonable wage for the duty.
“There are guidelines around how much you can pay them without triggering federal income tax, and that income can potentially be contributed to a Roth IRA in their name,” Mostransky explained.
In all cases, proper execution and expert guidance can help you to avoid misinterpreting IRS rules.
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This article originally appeared on GOBankingRates.com: I Reviewed 3 ‘Tax Hacks’ From Social Media — Only 1 Was Actually Safe
