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As long as it’s still around, TikTok is arguably the most popular social media application currently operating. Known for it’s addictive, short-form videos on any topic you could imagine, people flock to the app by the billions, ranging from middle age to early teens, to connect from all corners of the globe.
We’re all for making it easier for people to connect and share ideas, but another dangerous element of TikTok and other social media platforms is the same thing that makes them great. Information is circulated to billions of users with the simple press of a button, and not all information is accurate.
With a healthy appetite for financial literacy and an even healthier appetite for building generational wealth, creators and influencers, presumably in an attempt to drive engagement for their content, make bold and inaccurate claims as it pertains to finances. Not only are these claims inaccurate at times, at best they could cost taxpayers money and at worst could subject them to legal implications. Here are a few of the popular myths that are circulating on social media:
1. The impact of a business expense write-off on your taxes
Influencers will lead viewers to believe that a write-off is a dollar-for-dollar credit that will lower your taxes by that amount, when that is not the case. The deduction or write-off is taken from the amount of income that you are taxed on. Even then, the percentage that ends up being deducted is dependent upon your tax bracket.
2. Home office expenses are deductible because of remote work
W-2 employees are not allowed to claim expenses incurred for a home office on their taxes. Before 2018 you could potentially deduct ‘employee business expenses’, but with the passage of the Tax Cuts and Jobs act, that deduction was eliminated.
One exception is for those who are self-employed and may be able to deduct a portion of home-related expenses, such as mortgage interest, property taxes, homeowners' insurance, and utilities.
There may be an opportunity for tax savings at the state level, because state and federal tax laws differ.
3. Registering a limited liability company (LLC) creates tax savings
One of the more popular myths that we’ve seen surrounds LLCs. An LLC will not save you anything in taxes, and in some cases can cause tax complications for anyone earning less than $80,000. An LLC may also carry additional reporting requirements throughout the year, such as filing a report at the state level.
4. Bonus depreciation on business vehicles
Influencers lead viewers to believe that they can choose an expensive vehicle for work because the full value is deductible in the first year the vehicle is in use. This is not entirely correct, and only up until 2023 workers could potentially deduct 100% of the vehicle purchase price during the first year if they met certain requirements. Bonus depreciation has now fallen to 80% and will fall by 20% each year until it completely goes away in 2027. The most glaring omission however, is the fact that taxpayers can only deduct the business-use percentage of the purchase price, NOT the full purchase price.
If electing to use bonus depreciation for business-use, the taxpayer would also forfeit the ability to utilize the standard milage rate to deduct expenses related to that vehicle.
5. The tax treatment of cryptocurrency
Seen as another way to make money and avoid taxes, buying and selling cryptocurrency could lead to some costly penalties from the IRS if not properly reported. The Internal Revenue Code was recently updated to include virtual currency. Failing to report and pay taxes on crypto is more likely to result in underpayment penalties and accuracy penalties.
When receiving cryptocurrency in exchange for goods or services, it will be taxed as ordinary income. If you are selling cryptocurrency, the gain or loss on that sale will be taxed as capital gains in most cases.
Protect yourself from misinformation
In the age of social media, we are bombarded with inaccurate information and filtering that information. This is especially important when it comes to financial advice.
If it seems too good to be true, it probably is. Viewers should consider the source and whether that person has an obligation to give credible advice. A great deal of these creators have no real tax expertise and claim themselves to be “entrepreneurs”. They may have even posted one tax-related thing and went viral and are looking to capitalize on the buzz around the topic again.
Always do additional research and seek the advice of a qualified accountant or tax professional.
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