We’ve all seen those eye-catching pop-up ads while browsing the web: “Discover the One Major Tax Trick the IRS Hates!” Most of us recognize such blatant red flags and either avoid clicking or look at the content with skepticism. However, not all misleading tax advice is so obvious.
Dubious claims often lurk in engaging videos on TikTok, YouTube, and other social media platforms, making them harder to detect and potentially more damaging.
These videos can be particularly persuasive when the content creator mentions, “I worked in the financial industry for years,” leading you to believe they’re qualified to dispense tax advice. But how can you determine if the information they’re sharing is accurate or that they’re genuinely credentialed?
This article will help you identify red flags in online tax advice and provide practical steps to verify a content creator’s credentials, enabling you to distinguish reliable information from misleading claims.
The Allure of Engaging Content
Social media platforms thrive on engagement. Creators often use sensational headlines and compelling narratives to capture attention. While some offer valuable insights, others may spread misinformation, either intentionally or due to a lack of expertise. Unfortunately, this issue isn’t exclusive to the financial industry – it’s pervasive across various fields.
We are all susceptible to misinformation, regardless of our level of education or expertise. In fact, a study conducted by researchers at Stanford University found that over 80% of participating students could not distinguish between actual news articles and native advertisements.
In the realm of health reporting, an analysis of the 20 most-shared articles on Facebook with the word “cancer” in the headline revealed that more than half contained claims discredited by doctors and health authorities. This indicates that a significant portion of what we consume online might not be accurate or vetted by seasoned experts – and it’s not always easy to distinguish misleading content from legitimate information.
Six Red Flags to Watch Out For
Identifying certain red flags can help you spot misleading information. While noticing one doesn’t automatically mean the advice is false, the more red flags you observe, the higher the likelihood that the information is unreliable.
1. Vague or exaggerated credentials
Red flag: phrases intended to make the presenter appear credentialed without specific details.
Example: A video where the presenter says, “As someone who’s been in the financial world for years, I have insider tips the IRS doesn’t want you to know,” but provides no specifics about their background.
What to look for: seek specific qualifications such as Certified Public Accountant (CPA) or Certified Financial Planner (CFP). Genuine professionals will clearly state their credentials and likely display them on their profiles.
2. Sensational Claims
Red flag: promises of “secret loopholes” or “tricks” that the IRS supposedly doesn’t want you to know.
Example: an article titled, “Eliminate your tax bill entirely with this one hidden strategy!”
What to look for: be cautious of advice that sounds too good to be true or claims to offer easy solutions to complex problems.
3. Lack of Evidence or Sources
Red flag: advice without reference to tax codes, regulations, or official guidelines.
Example: a social media post saying you can deduct all personal meals as business expenses.
What to look for: reliable advice is usually backed by concrete references to the Internal Revenue Code, IRS publications, or well-known financial authorities. Don’t hesitate to ask for sources or clarification.
4. Pressure Tactics
Red flag: urgency cues like “You must do this now!” or “This secret won’t last long!”
Example: a message stating, “Claim this exclusive tax credit today before it’s gone forever!”
What to look for: good financial strategies are well-thought-out and don’t require hasty decisions. Take your time to research and consult professionals.
5. Overgeneralization
Red flag: statements that ignore individual circumstances or local laws.
Example: a claim like, “Incorporate your side hustle immediately to save thousands in taxes!”
What to look for: quality advice acknowledges that tax strategies often depend on personal situations.
6. Conflicts of Interest
Red flag: content that pushes a product or service as the solution to your tax woes.
Example: a video that insists, “The only way to reduce your tax bill is by investing in this exclusive real estate program I offer.”
What to look for: be wary if the primary goal seems to be selling something rather than educating.
How to Verify a Content Creator’s Credentials
Licensed professionals like CPAs adhere to strict ethical standards and are often very careful about the information they share online. However, these safeguards don’t prevent unlicensed individuals from disseminating misinformation.
When evaluating the credibility of online content, it’s important to verify a creator’s qualifications. While you may not find all of the following indicators for every legitimate professional – such as extensive publications or media features – the more evidence you can gather, the higher the likelihood that their advice is trustworthy.
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Check professional licenses: search for their name on state licensing board websites or professional organization directories to confirm their credentials.
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Review their online presence: look up their LinkedIn profile or professional website. A legitimate expert will often have a consistent online presence detailing their experience and qualifications.
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Search for publications: see if they have contributed to reputable publications or have been cited in the media.
Assessing the Quality of Advice
While spotting red flags can alert you to potentially unreliable sources, assessing the quality of the advice itself goes a step further. This involves a deeper evaluation of the content to determine whether the information is accurate, applicable, and trustworthy. It’s not just about who is providing the advice, but also about the substance of what’s being said.
Contextual Misrepresentation
Videos or articles may present isolated cases as general rules or completely misrepresent legal precedent. For example, some influencers contend that taxpayers can refuse to pay taxes on religious grounds by invoking the First Amendment, but this is a serious misrepresentation of the law. The IRS has identified this as a frivolous argument that is consistently rejected by courts.
To assess the quality of such advice, consult a professional to verify whether the strategy is legitimate and applicable to your situation. Also, consult the IRS publication on frivolous tax arguments to see if the advice has already been deemed unreliable.
Incorrect Causality
Misleading advice often suggests that one action will directly cause a specific tax outcome without considering other factors. For instance, someone might claim, “People who donate to charity pay less in taxes.” This oversimplifies how charitable deductions work, ignoring factors like adjusted gross income limits and itemization requirements.
Recognize that laws are complex, and outcomes often depend on multiple variables. Before acting on advice that promises direct results, understand the underlying rules and consult a tax professional to grasp the full picture.
Risk Misrepresentation
Some content downplays the risks or legal implications of a tax strategy. For example, sources may imply that by forming an S-corporation, you can avoid paying payroll taxes. They might neglect to clarify that you’re legally required to pay yourself a reasonable salary (subject to payroll taxes) if you’re actively working in your business.
Ensure that potential downsides or the likelihood of IRS scrutiny are adequately discussed when evaluating such advice.
Steps to Protect Yourself
Online misinformation is an evolving problem, and detecting it isn’t an exact science. While we’ve highlighted some common red flags, we haven’t covered every possible example of misleading tax advice. New misinformation appears constantly, and acting on bad advice can lead to serious consequences.
The most effective way to protect yourself is to seek personalized advice from a qualified tax advisor who understands your unique circumstances. A CPA can provide tailored guidance, help you comply with tax laws, and ensure you’re making decisions that align with your financial goals.
If you’re interested in developing a comprehensive tax strategy, we’re here to help. Please contact our office to speak with one of our experienced CPAs, and together, we can find solutions tailored to your needs.