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Trouble on #TaxTok

Viral misinfo encourages gig workers to take bad write-offs, make ill-advised purchases

by
Chloe Bryan
Updated 
March 13, 2023
Icon check
Reviewed by
Daisy Does Taxes
No items found.

Trouble on #TaxTok

Viral misinfo encourages gig workers to take bad write-offs, make ill-advised purchases

by
Chloe Bryan
Updated 
February 23, 2024
Icon check
Reviewed by
Daisy Does Taxes

Every tax season, nearly 60 million US contractors, freelancers, and gig workers gear up to file their taxes. Thanks to a deeply confusing tax code, self-employed workers often turn to the internet for help. There’s plenty of tax information out there — which means, naturally, that there’s plenty of misinformation too. An especially dicey source is TikTok.

Tax TikTok — or “TaxTox” — isn’t all bad. Creators like @dukelovestaxes and @thenotspicyaccountant consistently post measured, helpful content. But exaggerated or outright bad advice often gets tens of thousands of views. The worst content encourages self-employed taxpayers to:

  • Write off expenses that shouldn’t be written off
  • Expect unrealistic refunds
  • Make unwise purchases 

Younger gig workers in particular might be at risk of getting bad advice. Gen Z is both well-represented in the gig workforce and likely to use TikTok as a search engine. When this demographic looks for information, Google — where it’s easy to find longform, technical tax guidance published by tax experts or the IRS itself —  isn’t necessarily their first stop. Nor are [(IRS publications)(An IRS publication is not just anything published by the IRS. IRS publications are guides released by the IRS that give taxpayers specific information on certain tax issues.)] always accessible to new gig workers. That means plenty of [(1099)(A 1099 form is a type of "information return," which means it informs the IRS about taxable payments. It is basically a record that you were paid by a person or company that is not your employer. You and the IRS will both get a copy.)] workers turn to TaxTok.

At Keeper, a smart tax filing app for self-employed people, we want to make 1099 taxes easier — not more confusing. So we watched hundreds of TaxToks, then spoke to tax experts to get their insights on the viral clips. In the end, we identified the five most troubling TaxTok myths affecting self-employed workers. We compared these, where possible, to anonymized 2022 transactions from 28,449 self-identified freelancers who used the Keeper app to see how viral tax hacks map on to actual freelancer behavior.

Here are our findings.

Myth #1: If you write off $500 in business expenses, you’ll save $500 on your taxes.

You may have seen a clip from the TV show Schitt’s Creek in which the character David (played by Dan Levy) tries to write off personal expenses as “business needs.” In the clip, which is frequently used as TikTok audio, David defines a write-off as “when you buy something for your business, and the government pays you back for it.”

“[The audio] is a joke, but it's honestly how many people view the whole system,” said CPA Tim Owens. In the context of Schitt’s Creek, it’s meant to demonstrate David’s lack of business savvy. Unfortunately, some TikTokers use the Schitt’s Creek audio more earnestly than they probably should. 

It’s true that tax write-offs can decrease your final tax bill. However, deductions don’t lessen your tax bill dollar-for-dollar. Instead, they lower the amount of money you’re taxed on.

Let’s say you made $5,000 from your freelance writing business in 2022, and you claimed $500 in business expenses. You would not owe $500 less in taxes. Instead, that $500 would be subtracted from your taxable income. 

In the end, you’d only be taxed on $4,500 — after all, that’s the amount that you actually got to enjoy.

Thanks to TikTok’s short format, though, creators sometimes fail to clarify the distinction between lowering your tax bill and lowering your taxable income when they talk about specific expenses. 

This results in two issues: they’re implicitly endorsing the idea that write-offs get you a dollar-for-dollar “refund” on your purchase, and they’re recommending taking write-offs that really shouldn’t be taken. (More on those below.)

Myth #2: People who rely on their appearance for work can write off appearance-related expenses.

We asked Robert Persichitte, a CPA who worked as an IRS auditor for 10 years, what he thought of this particular myth. His official response: "AAAAaaaaaggghh! No!"

Appearance-related deductions are a hot-button issue on the tax side of social media. One creator, for instance, got into hot water when he said that he embroidered his name onto the inside of the suit he uses for work, then wrote it off as a “uniform.”

Unfortunately, writing off appearance-related expenses is pretty difficult to pull off in the eyes of the IRS. “The courts have been pretty consistent on this point,” explained Logan Allec, a CPA and founder of tax relief company Choice Tax Relief.

Essentially, taxpayers have to prove that their appearance-related expenses are only good for their business, not for their personal life. There’s a high burden of proof! Here are a [(few past cases)(Different types of tax court opinions have different precedential effects. An opinion marked "T.C. memo" is precedential, while a summary opinion is not. However, all of these court cases work together to present a clear pattern challenging personal care expenses.)]:

  • Drake vs. Commissioner (1969, precedential): The court ruled that a man enlisted in the military could not write off his mandatory biweekly haircuts, as they doubled as a personal expense.
  • Hynes vs. Commissioner (1980, precedential): The court ruled that a news anchor could not write off his makeup, haircuts, or wardrobe, even though they were required for him to “maintain a neat appearance” at work.
  • Pevsner vs. Commissioner (1980, non-precedential): The court ruled that a manager at a Yves Saint Laurent boutique could not write off the YSL clothes she was required to purchase and wear at work.
  • Hamper vs. Commissioner (2011, non-precedential): The court ruled that another news anchor could not write off expenses like manicures, hair care, makeup, and “conservative” on-air clothing, though all of these were required for work.

Rule of thumb: If it’s suitable for everyday use, it’s not a write-off.

One rare court case where the taxpayer came out on top proves this general principle. In the 1994 case Hess vs. Commissioner, the petitioner was an exotic dancer who got very large breast implants for professional branding purposes. (After the implants, her stage name became “Chesty Love.”)

The implants helped her earn more money, but they didn’t provide any personal benefit: in fact, they were so unsuitable for everyday use, they led to injury, infection, and social ostracization. She was permitted to write them off.

Myth #3: Lifestyle influencers can write off “lifestyle expenses,” like clothing hauls or home decor.

influencer-related images: a fancy hat, a pair of sunglasses, a phone on a tripod, a messenger bag, a person holding up their phone for a selfie, a purple sweatshirt

As with appearance-related write-offs, this myth speaks to the importance of separating out personal and business expenses.

Plenty of influencers’ businesses are tightly interwoven with their personal lives, which means figuring out write-offs can be pretty confusing. It’s not true, however, that influencers can write off personal items — “aesthetic” decor, makeup (even if it’s used for filming), or trendy clothing, for example — just because their personal lives are on display.

The IRS requires that write-offs be “[(ordinary and necessary)(This IRS requirement means that your business write-offs must make sense given your particular industry and have been purchased for the purpose of carrying out business activities.)]” for your business. According to Persichitte, though, some people tend to “get pedantic” about this requirement: They allege, for example, that they need to purchase certain items in order to lead an aspirational lifestyle.

No matter what you think about this argument, it’s important to realize that the IRS doesn’t see it that way. Its “Audit Technique Guide,” distributed to all auditors, takes a pretty narrow view of what entertainers can write off. (While not a substitute for a deep knowledge of the law itself, the guide is a “good preview of what to expect in an audit,” according to Persichitte.)

“Entertainers have been known to make a convincing argument about how much they have to spend to ‘stay on top’ or keep current,” it reads. “Nevertheless, most of these items typically overlap too much with personal expenses to constitute business deductions."

In practice, 1099 workers might be rightly skeptical of these sweeping lifestyle deductions. Among Keeper’s dataset of 28,449 anonymized freelancers’ spending behavior from 2022, those who made purchases from Shein — a fast fashion retailer frequently featured in haul videos — spent an average of $229 for the year on the site. As a group, these freelancers attempted to write off just 8% of their Shein transactions. 

That’s a plausible percentage, given that Shein sells costumes, wigs, and props: legitimate work-only expenses for independent creators like sex workers and cosplayers. 

By contrast, 68% of the same group wrote off some portion of their rent-related transactions — probably because they work from home. That’s a far more common and (in most cases) far more substantial deduction: After all, it applies to plenty of industries.

So why are shady write-offs recommended all over TaxTok? In Owens’s view, it comes down to a classic and often destructive tension on social media: quality vs. virality.

“People want to get rich quick and want there to be some secret formula that only rich people know about, when the truth is it’s a secret formula designed for rich people, so you’re already excluded,” he said. “So the personal expense stuff takes off because it’s basically saying, ‘Your home is full of tax write-offs and you just didn’t know it.’” 

Owens also pointed out that influencers — and the tax preparers that work with them — are uniquely incentivized to post misleading content that gets a lot of engagement. 

“A bunch of tax preparers tout themselves online as, essentially, the ‘sexy alternative’ to your normal boring accountant do whatever they need to to keep these influencers in their client list,” he said. “They’ll write off whatever they want to keep them happy, which gives the influencers even more fuel to add to the fire … ‘My CPA let me do it, so yours should too.’”

Myth #4: You need an LLC to claim write-offs.

This one’s just false! You absolutely do not need an LLC to claim write-offs.

“To write something off as a business, all you need is a clear business enterprise,” says Persichitte. “The IRS doesn’t care about the legal structure.”

Basically, you’ll just need to make sure that your business is an actual business (as opposed to a hobby that sometimes earns you extra cash). The IRS lists lots of factors you can use to figure this out — including:

  • Whether you keep records
  • Whether you depend on the income from your business
  • Whether you have non-monetary motives for your work, such as “general enjoyment or relaxation.”

There’s no single deciding factor — the IRS considers the whole list in context to evaluate any given money-making activity.

However, it makes sense that many 1099 workers believe they need an LLC to claim write-offs. Businesses like LegalZoom, which help self-employed people with LLC formation, market aggressively on social media. And some TikTok videos misleadingly imply that an LLC is the only way to “legitimize” your business. 

In reality, however, expenses like your work computer and your home office are still deductible if you’re a [(sole proprietor)(A sole proprietor is someone who owns an unincorporated business by themselves. Do you sell on Depop? Drive for Uber? Take on pet-sitting or landscaping clients? You are a sole proprietor.)].

“I think the folks to blame for this [misconception] are the LLC shops,” said Allec. “It’s a nice way to convince your audience to set up an LLC.”

In truth, LLCs aren’t a necessity for everyone. If you make $80,000 or less per year in 1099 income, an LLC might not even be that helpful. Single-member LLCs are even [(taxed identically)(LLC owners can elect to be taxed as S corporations instead, leading to more favorable tax treatment — but only if they earn enough income to pay themselves a reasonable salary and have some profit left over. These restrictions make the tax status less useful for many self-employed people.)] to regular sole proprietorships! And it’s a whole lot of paperwork, plus fees for formation, certification, and payroll.

Myth #5: Think you might want a Hummer to use for work? Go for it! You can deduct its full cost the first year it’s in use.

Creators who encourage this deduction are referring to Section 179, a portion of the tax code that lets you deduct the purchase price of a business vehicle if it meets certain requirements. These requirements are:

  • It weighs between 6,000 and 14,000 pounds
  • You use it 50% or more for work

There’s a bit of truth in this myth. You can deduct vehicles that meet these requirements under Section 179. However, several creators failed to mention one major restriction on using this tax code provision for savings: you can only deduct the business-use percentage of any purchases. That means if you use your [(G-Wagen)(Yes, that is really how it is spelled.)] for work 55% of the time, you can deduct 55% of its purchase price.

For the right person, this can be a pretty sweet deal, mostly because you won’t have to depreciate your vehicle on your taxes. If you’re a farmer buying equipment, need a small truck, or rely on a large passenger vehicle — and you were probably going to buy one anyway — it’s a great perk to take advantage of.

But that doesn’t mean deducting a very large car under Section 179 is a good idea for most people — or even most people who use a very large car.

“You have to spend money to deduct it,” explained Persichitte. “It's not one-for-one, so your best-case scenario on spending $1,000 is saving $350 in federal taxes, and that's only if you are in the top tax bracket.”

Another downside: If you take a Section 179 deduction on a vehicle, you can never use the standard mileage rate to deduct expenses related to that vehicle again. You also can’t write off depreciation on the car in future years. Basically, you might save money now, but your tax bills will be higher in the long run.

As with personal care expenses, Owens thinks the ubiquity of Section 179 TikToks is because writing off a pricey car is a splashy prospect — one that’s more likely to get lots of engagement.

“The reason they always focus in on cars is simple: Regular deductions [are] maybe a few hundred [dollars] at a time, and that's boring,” he said. “Cars [mean] tens of thousands at a time, and that's exciting.”

In practice, self-employed people may not be falling for the hype. We examined Keeper’s anonymized dataset of freelancer transactions, looking for car brands typically associated with Section 179 deductions: Hummer, Land Rover, and Mercedes-Benz. Of the 28,449 freelancers in our dataset, only 222 people made purchases from any of the three dealers: 0.78% of our sample. Among these, the average spend was only $3,385.15 for the year — not enough to account for annual payments on what’s generally a five-figure vehicle.

It’s important to make investments to get your business up and running, even if that means taking a loss the first few years. But just because something is a tax break doesn’t mean it’s a good tax break for your individual situation. If you write off a G-Wagen, that’s great. But you still paid for the G-Wagen!

As Allec put it, “You shouldn’t let the tax tail wag the dog.”

Company Contact Country
Alfreds Futterkiste Maria Anders Germany
Centro comercial Moctezuma Francisco Chang Mexico
Ernst Handel Roland Mendel Austria

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Chloe Bryan

Global

Chloe is a staff writer at Keeper and a writer, editor, and journalist. She previously reported on internet culture and lifestyle trends for Mashable, where she also led the shopping section. In her free time, she enjoys reading and writing poetry, traveling, watching the Mets, and hanging out with her dog Pete.