Personal Finance

Bad tax advice is multiplying on TikTok

Published

7 months ago

April 10, 2024

Taking an affordable vacation is easy, accountant Krystal Todd suggests in her TikTok videos: Schedule some meetings, call it a business trip and deduct it from your taxes.

A certified public accountant in Miami, Todd has nearly 240,000 followers on TikTok and 68,000 on Instagram. She has paid partnerships with tax filing and financial services firms Intuit and TaxSlayer.

But offline, she says viewers might need more information than the tax tips in her videos.

“I’m a CPA, but I’m not your CPA,” she said of her social media content. “It’s financial education, not financial advice.”

As the April 15 filing deadline approaches, aggressive tax advice is booming online, especially on the popular video sharing app TikTok. The Internal Revenue Service, though, says a lot of the advice is dubious, exposing unwitting taxpayers to potential fines if they try to carry it out. Bad tax advice has been a problem for generations, but it spreads far more easily on social media than it did in the pre-internet days.

The tips that pop up on TikTok and on Instagram and Facebook, both owned by Meta, make splashy claims that promise big returns. One influencer, Karlton Dennis, says to buy short-term rental properties that lose money on paper, and use that to offset income from your full-time job. Another, Candy Valentino, tells followers to hire their children as employees and deduct some of their housing costs as a business expense — and if their accountant warns that could cause an audit, their accountant is wrong. Still others tell hundreds of thousands of followers to buy 6,000-pound vehicles, then write off the sticker price, maintenance and fuel.

Some creators’ videos go much further, urging people not to pay taxes at all: “Taxes are a scam.” “There’s no law to pay taxes.” “Paying taxes is voluntary.” All of those claims are false.

A TikTok spokesperson said the company removes what it deems to be scams or fraud from its platform, and promotes “best practices” when engaging with online financial content. The site prohibits content that involves the “coordination, facilitation, or instructions on how to carry out scams.” And TikTok’s financial decisions guide tells users to seek “credible sources to cross-check financial guidance.”

Meta declined a request to comment.

In reality, taxpayers can’t deduct salaries they pay their children unless the children truly are gainfully employed, and they can’t deduct the full cost of a fancy new vehicle unless the car is used to run a business, not for personal use. Deducting business trips from your taxes can be legal — but it’s more complicated than just scheduling a meeting during your vacation, and experts suggest keeping business transactions and personal transactions separate to avoid red flags for audits.

And taxes are legal — and not at all voluntary.

“This is not a new phenomenon in any way. The challenge is, on the social media platforms, that the availability of these messages is so much broader,” one recent former top IRS official said. The person spoke on the condition of anonymity to discuss nonpublic agency policy. “Twenty or 30 years ago, this was something your brother-in-law handed around in a shady pamphlet on the weekends.”

Congress and the Biden administration are already concerned about TikTok for other reasons: Worries over Chinese access to the app’s user data led the House in March to vote to force its parent company ByteDance to sell the site to U.S. owners, lest it face a nationwide ban. The Senate is considering the measure. (Tax misinformation spreads on U.S.-based apps, too.)

Many of the influencers posting tax tip videos post a range of advice, much of which is sounder and less aggressive than the most eye-catching videos about big deductions. Several of them made clear in interviews that they do understand the nuances of tax law. The videos serve mostly to draw attention to their content — and to help promote the idea that their financial advice, in general, will lead to riches. Many refer viewers to other products — including stock tips, books and online courses — after offering questionable tax tips.

“I bought a $70,000 truck late last year to save more than $21,000 on my taxes,” Mike Poarch said in a video promoting what he calls a “tax hack.” The purchase, he said, “now allows me to write off all of my gas, which is about $70 a week, plus my insurance, which is like $350 a month, plus all of the maintenance and all of the upgrades.”

In an interview, Poarch acknowledged that only business use of the vehicle is deductible, not personal use: “Sometimes these videos make it appear a little more rosy than it may actually be, but that’s to help with virality.”

Todd said she thinks of her TikTok videos as educational tools, especially for young women of color like her. She explains in her videos how someone should fill out tax forms when starting a new job, for example. She said she tries to give people a more positive and nuanced outlook by talking about reasons it might be good not to get a refund, and how taxes shape society in beneficial ways. Like many TikTokers, Todd said she believes the advice she gives her in-person, paying clients as a certified professional accountant is held to a higher standard for accuracy than the advice she gives online.

Intuit in a statement said its collaboration with Todd was part of the company’s “efforts to provide career opportunities for bookkeepers, and is not an endorsement of other content.” It urged consumers to “be mindful of tax and financial advice on social media.” Representatives for TaxSlayer did not respond to requests for comment.

Todd removed videos promoting TaxSlayer products and links to TaxSlayer discounts from her social media pages and personal website after an interview and after The Washington Post asked TaxSlayer about her affiliation with the company.

Frequently, influencers said their videos were deliberately flattening important context around tax law.

In one recent clip, Will Myers, who makes videos for his 421,700 TikTok followers and 173,000 Instagram followers under the name Money Man Myers, said he helped one client swing their tax return from owing the IRS more than $146,000 to getting a $16,000 refund, using strategies such as hiring the client’s children for their business.

When a reporter asked — really? — Myers conceded, “They have to do real work. The job has to match their age. You can’t say your 4-year-old is driving.” And he showed his detailed knowledge of tax law, even citing the case number of a tax court decision on the question of hiring a child.

Dennis did not respond to requests to comment on his videos, and Valentino said she would only participate in an interview if The Post paid her for her time, which is against standard journalistic ethics.

Thomas Fattorusso Jr., the special agent in charge of the IRS’s criminal investigations division for New York, said his department is aware of social media trends — he mentioned the common videos about hiring children and buying trucks, specifically, in an interview, but declined to discuss individual investigations.

He noted that social media influencers might not be directly profiting from an incorrect tax return generated by a person who listens to their online tips in the way that a tax preparer who lies on a client’s tax return directly profits. Influencers aren’t charging clients to submit returns based on their bad advice. But many do make money on their videos, whether directly on the social media platform or by using the platform to sell a product like a course on financial strategies.

Even though the influencers aren’t acting as the tax preparer or adviser for followers on social media, advice that they give could in theory make them a “promoter” in the eyes of the IRS. Fattorusso described a “promoter” as someone who knowingly disseminates a tax fraud scheme, which means they could come under criminal investigation, he said: “You are promoting this. There’s a willful intent to what you’re doing in telling people they can do this when you know they can’t and it’s illegal.”

Fattorusso’s office pointed to other tax promoter cases as examples, though none of those defendants’ activities were solely on social media.

Making a case against an influencer just because of bad tax advice in videos would be immensely difficult, said Nina Olson, who served as the National Taxpayer Advocate, the IRS’s internal watchdog, from 2001 to 2019. In that role, she campaigned for Congress to expand the IRS’s authority to regulate tax preparers and others who offer tax advice.

IRS investigators would have to identify a similar problem on a large number of tax returns, audit those taxpayers and trace the deficiencies of the tax filings to the same online influencer.

“You can’t stop people from saying stupid things,” Olson said. “It’s when they’re monetizing stupid things and you can make a tie to someone else’s act, relying on what they said.”

And some TikTok tax tippers have begun hedging their language to avoid legal pitfalls, said Caroline Bruckner, who studies tax administration and financial literacy at American University’s Kogod Tax Policy Center. Adding phrases like “Take a look at” or “In my opinion” ahead of sharing questionable tax advice could insulate content creators from legal consequences, she said.

Maryland accountant Nick Krop, 30, has been making videos since 2021 in which he frequently shows a snippet of another social media creator’s tax advice, then says why it’s wrong. Reacting to a video that advised putting assets into a trust to avoid taxes, Krop marveled, “It’s not true, a work of fiction, a complete fabrication. … A trust is not a magical entity that will shield you from taxes.” On a video that claimed whole life insurance could be used to avoid taxes, Krop commented, “Good rule of thumb: if it was that easy to reduce your taxable income to nothing, everyone would be doing that.”

He said even some of his own clients who work from home have asked if they can write off new cars — which seems inherently dubious.

Krop, like every TikTok creator interviewed for this story, said he doesn’t think the government should police what anyone says on social media about taxes. But he does think TikTok should put its thumb on the scale to make sure users see correct tax advice more often than incorrect: “It would be nice if TikTok would elevate those people who are trying to correct the record.”

Personal Finance

Why tax-loss harvesting can be easier with ETFs

Published

5 hours ago

November 15, 2024

Business Finance News

Izusek | E+ | Getty Images

Despite a strong year for the stock market, you could still be sitting on portfolio losses. But you can leverage down assets to score a tax break, experts say.

The tactic, known as “tax-loss harvesting,” involves selling losing brokerage account assets to claim a loss. When you file your taxes, you can use those losses to offset portfolio gains. Once your investment losses exceed profits, you can use the excess to reduce regular income by up to $3,000 per year.

“Tax-loss harvesting is a tried and true strategy to lower investors’ tax bills,” said certified financial planner David Flores Wilson, managing partner at Sincerus Advisory in New York.

More from ETF Strategist:

Here’s a look at other stories offering insight on ETFs for investors.

After offsetting $3,000 in regular income, investors can carry any additional losses forward into future years to offset capital gains or income.

“Investors can benefit substantially over time” by tax-loss harvesting consistently throughout the year, Wilson said.

What to know about the wash sale rule

Tax-loss harvesting can be simple when you’re eager to offload a losing asset. But it’s tricky when you still want exposure to that asset.

That’s because of guidelines from the IRS known as the “wash sale rule,” which blocks you from claiming the tax break on losses if you rebuy a “substantially identical” asset within the 30-day window before or after the sale.

In other words, you can’t sell a losing asset to claim a loss and then immediately repurchase the same investment.

How exchange-traded funds can help

While the wash sale rule is a challenge, exchange-traded funds, or ETFs, can help investors avoid trouble with the IRS, experts say.

“The beauty of using ETFs for doing tax-loss harvesting … is that there are so many similar, but not identical, ETFs that could be exchanged for a losing one,” said George Gagliardi, a CFP and founder of Coromandel Wealth Strategies in Lexington, Massachusetts.

For example, many ETFs in the same sector, such as large-cap value, emerging market or small-cap growth, use the same pool of stocks with different selection criteria, he said.

But ETFs with identical indexes, like the S&P 500, “will run afoul of the wash sale rule” and the loss won’t be allowed, Gagliardi said.

Jim Cramer explains why mutual funds are not the best way to invest

Ultimately, the IRS definition of “substantially identical” isn’t black and white and “depends on the facts and circumstances” of your case, according to the agency.

When in doubt, consider reviewing your plan with an advisor or tax professional to make sure you’re safe from violating the wash sale rule.

Personal Finance

Older voters prioritized personal economic issues on Election Day: AARP

Published

8 hours ago

November 15, 2024

Business Finance News

Voters line up to cast their ballots at a voting location in Bethlehem, Pennsylvania, on Nov. 5, 2024.

Samuel Corum | Afp | Getty Images

When asked, “Are you better off today than you were four years ago?” the answer for many older voters ages 50 and over was “no,” according to a new post-election poll released by the AARP.

Almost half — 47% — of voters ages 50 and over said they are “worse off now,” the research found, while more than half — 55% — of swing voters in that age cohort said the same.

In competitive Congressional districts, President-elect Donald Trump won the 50 and over vote by two percentage points — the same margin by which he carried the country, AARP found.

Among voters 50 to 64, Trump won by seven points. With voters ages 65 and over, Vice President Kamala Harris won by two points.

The AARP commissioned Fabrizio Ward and Impact Research, a bipartisan team of Republican and Democrat firms providing public opinion research and consulting, to conduct the survey. Interviews were conducted with 2,348 “likely voters” in targeted congressional districts following Election Day between Nov. 6 and 10.

Older voters, who make up an outsized share of the vote and tend to lean Republican, made a difference in a lot of key congressional races, according to Bob Ward, a Republican pollster and partner at Fabrizio Ward.

“Overall, 50-plus voters really are what delivered Republicans their majority,” Ward said.

Older swing voters focused on pocketbook issues

When asked “How worried are you about your personal financial situation?” in a June AARP survey, 62% of voters ages 50 and over checked the worry box, while 63% of voters overall did the same.

Voters continued to place an emphasis on their money concerns on Election Day, the latest AARP poll found.

“All these surveys that we conducted for AARP spoke to a lack of economic security for people,” said Jeff Liszt, partner at Impact Research.

“The shock of inflation had left them without a feeling of security,” he said.

For voters ages 50 and over, food ranked as the top cost concern, with 39%, the poll found. That was followed by health care and prescription drugs, with 20%; housing, 14%; gasoline, 10%; and electricity, 6%.

More than half — 55% — of voters ages 50 and up said they prioritized personal economic issues, including inflation, the economy and jobs, and Social Security when determining their vote.

New AARP CEO: 'Our goal is to hold elected officials accountable' to Americans 50 and over

Older swing voters were more likely to turn out at the polls due to those pocketbook issues than any other priorities, the poll found.

Republicans won older voters on most personal economic issues, though voters ages 50 and up still favored Democrats on Social Security by two points.

Democrats have traditionally had a stronger lead on Social Security, Ward said, while the poll results show it is now “completely up for grabs.”

“Looking at the midterms, whether I’m Republican or Democrat … this is going to be an issue I want to win on,” Ward said.

Voters 50 and over broadly support Medicare negotiating prescription drug prices, as well as policies to help the older population age at home. Non-financial issues such as immigration and border security and threats to democracy were also among top concerns for some older voters.

Social Security reform may be bigger focus

While both presidential candidates promised to protect Social Security on the campaign trail, they did not provide plans to restore the program’s solvency.

The trust fund Social Security relies on to pay benefits is projected to run dry in 2033, at which point 79% of those benefits will be payable.

“What’s absolutely clear is that there’s an action-forcing event that we’re getting closer to, and that at some point Congress is going to have to act,” said Nancy Altman, president of Social Security Works, an advocacy group focused on expanding the program.

While Trump has touted plans to eliminate taxes on Social Security benefits, research has found that would worsen the program’s insolvency. The House voted this week to eliminate rules that reduce Social Security benefits for certain people who have pension income, which would also add to the program’s costs.

For most Americans, Social Security is the primary source of retirement income, according to the AARP. About 42% of people ages 65 and over rely on the program for at least 50% of their incomes; about 20% rely on it for at least 90% of their incomes.

Like Social Security, Medicare also faces a looming trust fund depletion for the Part A program that covers hospital insurance.

“We want to ensure that we’re protecting Medicare, Social Security and that it’s done in a fiscally responsible way,” AARP CEO Dr. Myechia Minter-Jordan told CNBC in a recent interview.

Personal Finance

Here’s what to expect on mortgage rates into early 2025

Published

11 hours ago

November 15, 2024

Business Finance News

Pekic | E+ | Getty Images

Mortgage rates seem to have steadied. That may be a good sign for the market, experts say.

The average 30-year fixed rate mortgage in the U.S. slightly dipped to 6.78% for the week ending Nov. 14, barely changed from 6.79% a week prior, according to Freddie Mac data via the Federal Reserve.

“Even though it’s higher than it has been over the course of several weeks, it’s probably good news for homebuyers,” said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.

“When rates are moving around a lot, it makes a lot of uncertainty in the market,” Lautz said.

Mortgage rates declined this fall in anticipation of the first interest rate cut since March 2020. But then borrowing costs jumped again this month as the bond market reacted to Donald Trump’s election win.

While the president-elect has talked about bringing mortgage rates down, presidents do not control borrowing costs for home loans, experts say.

Instead, mortgage rates closely track Treasury yields and are partially affected by what happens with the federal funds rate.

“They foresee inflationary policies, whether it’s tariffs or greater government spending, the tax bill … they’re pricing in more inflation,” said James Tobin, president and CEO of the National Association of Home Builders. “As the bond market reacts, mortgage rates are going to react to that, too.”

Less volatility can be a good sign, said Chen Zhao, Chief economist at Redfin, an online real estate brokerage.

“High volatility by itself actually pushes mortgage rates even higher above treasury yields,” Zhao said. “More stable rates also means that homebuyers don’t have to worry during their home search about what their budget allows for changing.”

Trump’s team did not respond to a request for comment.

Don’t expect ‘huge swings’ on mortgage rates

Election uncertainty contributed to an upward swing in mortgage rates during October. Then rates went up even more last week as the stock market and yields reacted to the election results.

The 10-year Treasury yield jumped 15 basis points on Nov. 6, closing to trade at 4.43%, hitting its highest level since July, as investors bet a Trump presidency would increase economic growth, along with fiscal spending. The yield on the 2-year Treasury was up by 0.073 basis point to 4.276% that day, reaching its highest level since July 31.

But now that we have a president-elect, mortgage rates are expected to gradually come down over time, Lautz said.

From a monetary policy standpoint, future rate cuts are up in the air. Federal Reserve Chairman Jerome Powell said on Thursday that strong U.S. economic growth will allow policymakers to take their time in deciding how far and how fast to lower interest rates.

If the Fed continues to ease the federal funds rate, it could provide indirect downward pressure on mortgage rates, according to NAHB chief economist Robert Dietz.

“However, improved growth expectations would lead to higher rates, as would larger government deficits,” he said.

Experts say that mortgage rates might head into a “bumpy” or “volatile” path over the next year.

“I don’t think that there’s going to be any huge swings down into the 5% range,” Lautz said. “Our expectation is that rates are going to be in the 6% range as we move into 2025,” she said.

How buyers, sellers and homeowners can benefit

Rates that are trending lower can present an opportunity for buyers who have been house hunting for a while, especially as the winter season kicks in. Competition tends to slow down in the winter months in part because homebuyers with kids are in the middle of the school year and reluctant to move, Lautz explained.

Our expectation is that rates are going to be in the 6% range as we move into 2025.

Jessica Lautz

Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors

Current homeowners can also make the most of lower rates.

For example, if you bought your home around this time last year, when mortgage rates peaked at around 8%, you might benefit from a mortgage refinance, Lautz said.

It “makes sense” to consider a refinance if rates have fallen one to two points since you took out the loan, Jeff Ostrowski, a housing expert at Bankrate.com, told CNBC after the Fed’s first rate cut this fall.

Remember that a loan refinance isn’t free; you may incur associated costs like closing costs, an appraisal and title insurance. While the total cost will depend on your area, a refi is going to cost between 2% and 6% of the loan amount, Jacob Channel, an economist at LendingTree, said at that time.

If you’re pondering on whether to refi or not, look at what’s going on with rates, reach out to lenders and see if refinancing makes sense for you, experts say.

Homeowners have earned record home equity. U.S. homeowners with mortgages have a net homeowner equity of over $17.6 trillion in the second quarter of 2024, according to CoreLogic. Home equity increased in the second quarter of this year by $1.3 trillion, an 8.0% growth from a year prior.

If you’re looking to sell your current home, you may be able to counteract slightly high borrowing costs on your next property by placing a larger down payment, Lautz said.