Taxes 2023: 4 Popular Tax Hacks To Avoid When Filing
Considering using a tax hack made popular by TikTok or another social media platform this year when filing your tax return? Think again.
While there are some cases where viral money hacks can be helpful to consumers, hacking your way through your tax return is generally not recommended. Avoid these popular tax hacks when filing your return.
Personal Expenses Count as Write-Offs
If you’re a social media influencer, can you write off items related to your appearance like clothes, accessories or makeup? Keeper, a tax app that helps 1099 workers find write-offs among their purchases and file their taxes, said this is a tax hack myth.
According to a representative from Keeper, personal items from influencers such as aesthetic décor and trendy clothing do not count as tax write-offs. Even if the influencer’s life is on display, the IRS still requires write-offs to be ordinary and necessary for the business. While 1099 workers may be able to write off portions of their home workspace as a deduction, personal items that are not deemed ordinary and necessary should not be counted among those write-offs.
Claiming False Dependents
This is a popular hack Armine Alajian, CPA and founder of Alajian Group, often sees. Alajian does not recommend using this hack. It can cost people money and may even land the taxpayer with criminal charges.
“Claiming children who don’t live with you or aren’t your dependents could raise a lot of issues not only for yourself but for the false dependent,” Alajian said. “The person who you claim as a dependent can run into problems filing their own tax return as their personal information is being used by someone else without their consent.”
A Car Weighing Over 6,000 Pounds May Be a Write-Off in the First Year of Ownership
In a Fast Company piece on TikTok’s “TaxTok” advice, CPA Colin Smith said this is somewhat true since the tax benefit falls under the IRS Section 179 tax depreciation rule. Assuming the owner uses more than 50% of a specific equipment’s use for business purposes, they may depreciate the full cost of this equipment during the tax year they acquired it.
Despite being somewhat true, however, there are several factors to keep in mind. Smith said there are specific limits from the IRS on the vehicle and how much it needs to weigh at a minimum and the amount of weight it may not exceed as well. The deduction also has a maximum amount too. Smith used the example of an SUV in 2022 rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight with a $27,000 deduction.
Remember to factor in the business use of the vehicle as well. If business use drops below 50%, Smith said the taxpayer may be subject to depreciation recapture in a subsequent year.
Not Claiming Some of Your Income
Let’s say you were paid for contract work you did last year but did not receive a 1099 form for it. Some people may decide not to claim this income because they didn’t receive the form.
“It is your responsibility to claim the full amount of income you received to keep your records straight and accurate,” Alajian said. “If you’re caught doing this, whether it’s on purpose or not, you can face fines, penalties and interest charges on the amount of taxes owed.”
The simplest fix if you are a contractor who did not receive a 1099 form and was paid for the work you did is to reach out to the company or employer for it.
What if a business owner issues a contractor a 1099 form and they don’t claim this income from you? Alajian said business owners do not get in trouble and are not responsible if vendors don’t claim income from them.
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