Should you trust TikTok for Tax Information?

Plus: Millionaires being Bad

Hi there,

We took a week off to recharge and retool, but we’re back on a NEW day with some fresh insight to get your business week started right! As usual, here’s our top 3.

1) 32% of Adults Prefer TikTok for Financial Information.

This is one of my favorite stats when I discuss the power of social media - in 2022 more people used TikTok as a search engine than Google. Read that again. Social media is being utilized by people to search for specific information and news. As a result - 32% of adults said they prefer TikTok as their primary source for financial information.

This is equal parts incredible and terrifying.

Incredible because it’s an easy way to disseminate information to the masses, and terrifying because it’s an easy way to disseminate information to the masses. Unsurprisingly, there's a tsunami of non-financial experts giving out financial and tax advice. And with the right catchy-verbiage, graphics, and music, a lot of this advice ends up going viral, and a lot of it is wrong.

TikTok tax “gurus”

That’s why it’s incredibly important to understand the credentialing and fiduciary responsibilities of those you take financial and tax advice from. Random dude with a microphone on a video talking about how he wrote-off his G-Wagon is not someone you want to go to for this information. Please only look to professionals for this type of advice because they’ll be able to apply it in a legal way to your specific situation and all the nuances that go along with it, unlike Mr. G-Wagon who is just trying to get likes and sell you his 3o day-trading course.

Yikes. Allegedly there are 1,000 millionaires with unfilled taxes who owe around $65 Billion to the federal government.

Senator Wyden wrote a letter to the IRS Commissioner urging more stringent enforcement of auditing wealthier taxpayers and large corporations.

It’s unfortunately not hard to see how we got here - the IRS has been underfunded for years, and the manpower needed to go after these returns and complex audits was not available. To be clear too - these are non filers, people who have simply not filed tax returns, not wealthy individuals utilizing a team of tax accountants trying to squeeze out deductions.

Senator Wyden specifically states he wants to see funding that was approved by Congress last year allocated toward going after these individuals.

3) No, A Kid’s Allowance is Not Earned Income. 

We’ve all heard about how the magical train to wealth for generations to come is getting a Roth retirement account set up for your child and contributing the maximum amount yearly. The hiccup with this - is that your child has to have EARNED income to contribute to a Roth, and no, an allowance does not constitute earned income.

Earned income includes things such as wages, salary, commissions, tips, bonuses, self-employment income, taxable non-tuition, stipend payments, and nontaxable combat pay (this goes for adults as well as kiddos). As you can see, “allowance” from their parents are not part of this. Nor are things like passive income - such as interest or dividends earned.

wELl hOw WoUlD tHe iRs eVeN kNoW? First off - stop trying to commit tax fraud. Second off - through matching of IDs. When you have a Roth, certain forms are submitted which include information of the holder of the account, such as their SSN. All those types of earned income are submitted via third parties to the IRS, so the IRS will know in most instances if you have earned income or not.

Luckily - there is now a workaround to contributing to a Roth for a child without the need for earned income. Starting in 2024, 529 plans, which were designed to save for educational needs, will be allowed to be rolled-over into a Roth IRA for the beneficiary if the 529 plan has been owned at least 15 years. It has a lifetime limit of rolling over $35k, and is subject to annual Roth IRA contribution limits.