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Victoria Lee is a lawyer in Los Angeles in a pretty fancy area, Beverly Hills. And if you've got an appointment with Victoria, chances are you got a problem. I've been practicing tax controversy and a little bit of tax resolution for about 10 years. And that's sort of like a term of art, right? What is a tax controversy? So tax controversy is when there is a dispute as to the underlying tax.
In other words, you've been filing your taxes, or not in some cases, and the tax authorities are not buying what you're selling. If people walk through your door, they are already probably in trouble with the IRS. Yes. They are being audited. Yes. And when you sit down, the first thing she's going to ask is, what's the issue? And working where she does...
people come in with some kind of wild problems. I've seen people try to deduct their Bentleys, Jets, Rolls Royces. Lots of people with normal problems come to her too. But no matter who you are, she tries not to judge. You want them to
to one, not feel stupid for the choices that they've made. Yeah, but also to feel comfortable that you have their best interests at heart. So if you kind of shut them down out the gate, then it's not going to create a good attorney-client relationship. So I do try to empathize with them and understand why they thought that this information was good information. So one of the questions she'll always ask is, where are you getting your info from?
Where'd you get the information that led you to believe you should deduct these expenses on your tax return? And a lot of them say TikTok. They're getting their info off, their tax info off TikTok. Yes. Ah, TikTok. Home to incredible economics explainer videos by a few of our Planet Money colleagues. And also, yes, lots of questionable tax advice.
If you're not on TikTok or Instagram, they're pretty much the same thing these days. Consider yourself lucky. Because on these platforms, there are a lot of videos where it's hard to tell if the person giving advice actually knows what they're talking about or if they're just kind of faking it, trying to get an audience. And a good portion of the feed, for me at least, is videos of dudes, mostly, talking
Talking about business, how to have a side hustle, passive income, and some really bonkers tax advice. I used to work with this guy that doesn't file taxes. He never has and he never started. Here's a tax loophole that influencers use to save millions on taxes. Tax loopholes paying your own children within your business. You can pay your kid $12,000 on taxes and the IRS definitely doesn't want you to know about this. Habibi, I'm talking about moving to Dubai, which is a tax-free state.
What's the age that I can start paying these kids? Can I pay Olivia, eight months old? Can I pay JP, who's two years old? I would say yes, if you can find... Okay, I think we got enough of that. Anyways, Victoria says all this TikTok tax advice could not come at a worse time. The IRS has a ton of new funding to hire thousands of agents right now to do audits. And they know all these tricks. There is...
kind of nothing new under the sun. There were people far before us, more creative and more intelligent. And so these are like Mickey Mouse schemes that aren't going to fly with the IRS. So not only have people been doing these schemes for a long time, but the IRS knows about them. Yeah. These are like preschool level schemes. It's not going to work.
Hello and welcome to Planet Money. I'm Nick Fountain. It is tax season. I was supposed to finish mine last weekend. We'll probably do them this weekend. And while I was procrastinating and scrolling through the feeds, I see a lot of weird tax advice. And the thing about a lot of this advice is it's not totally bogus. Pretty often there is a grain of truth in the nonsense.
Today on the show, TikTok made me deducted. We're going to run some of the greatest hits of TikTok tax advice by some bona fide tax experts and learn a thing or two about the tax code.
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Today, we're going to do sort of the good, the bad, and the ugly of TikTok tax advice, if that's cool with you. That's great. All right. Tax attorney Victoria Lee is back to help us make sense of tax TikTok. And she and all the other experts we're going to talk to today want to emphasize that they are not giving out tax advice and that if you need help, you should consult a tax professional.
Alright, let's get to it. Have you ever lost money gambling and wondered, could this benefit me anyway? Okay, so this is some tax advice that you see all the time on the internet about how you can use your gambling losses to reduce your tax bill. In this one, a guy is talking to the camera from a fancy desk, but there are so many other examples.
That video has like a million views. This next one is a skit. Those are very big on TikTok. And it is recorded at a casino in Vegas. This gambling losses write-off thing is everywhere. It's gotten to the point that there are even parodies of it.
If you lose every single bet that you ever make, you'll report a loss and you won't have to pay taxes because you'll have lost all your money because you're addicted to gambling and you can't stop. All right, let's run all this by our tax expert, Victoria. These are all talking about gambling losses and how you can write off your gambling losses.
Is that true? It's true. Here's the problem. It's misleading. Victoria says these videos get to a pretty fundamental concept in taxes. The idea of taxable income. That's the amount you earn that's going to wind up being taxed. When you gamble and you win big at the casino, congrats. That is income. The casino is pretty likely going to let the IRS know how much you've won.
But it's not like you're only out there winning. To hit the jackpot, you probably made some losing bets too. And so you are only taxed on your net winnings. Your winnings minus your losses. In tax terms, you deduct those losses from your winnings and you get your taxable income. But you got to have good records. A lot of people, they don't go to the casino with their notebook. Ha ha ha.
And, you know, the casinos try to help you out. You know, you can track your activity through your gambling card, but then a lot of people start playing in cash. And so they're not necessarily using their gambling card. And so the issue comes in proving that you have losses to offset your winnings. Victoria, she would know. She sees a lot of audits about this. This year, absolutely.
at least 20 gambling audits. Victoria says at the end of the day, what people misunderstand the most about this gambling losses saving you money on taxes thing is like the fundamental nature of what a tax deduction actually is. A lot of these videos are borderline encouraging people to go out and gamble or to spend money in pursuit of deductions.
But the amount you save on those deductions is always going to be less than what you had to spend to get them. So chasing deductions, it's a losing game.
For illustrative purposes, I like to use easy numbers, right? Okay, go for it. Say you want to deduct $100 and you're in the 35% tax bracket. So you spend $100 to save $35. Well, guess what? Now you're at a loss $65. Right. Doesn't really make economic sense. No. In summary...
If you are a highly organized gambler and you have winnings and good records of your losses, sure, deduct them. But like Victoria says, do not go out and lose $100 at the casino to save $35 on your tax bill. And certainly do not go looking for scratch tickets on the ground like this guy on TikTok. Every day for lunch, I come out, I pick up scratch tickets off the ground. You pick up an aluminum can, you get what, five cents? Yeah.
This right here, two, three dollars a pop. I haven't paid taxes in years. Apparently people do this all the time, but Victoria says it is fraud. You might get caught. Also, I think that guy is joking. All right, we're at TikTok tax tip number two. This one has to do with pets.
For this one, we went to Goldburn Maynard. He's a professor at Indiana University, a former IRS tax lawyer, and also the owner of two cute little dogs. Their names are Dee Dee and Patty. They're a special breed, Cavalier King Charles Spaniels. So Lady and the Tramp, but smaller. How much do you think you spend a year on two dogs? Oh.
Oh, my God. I don't want to even try to start estimating because I may cry. Goldberg is not a big social media guy. Much respect.
So I was not sure if he knew that, according to TikTok, he might be able to get a lot of tax breaks because of DeeDee and Patty. Check out these pet-related tax breaks. I'm going to use my dog as a tax write-off. Your dog? What are you talking about? Yeah, you can get tax deductions for your pet food if you can prove to the IRS that your dog is a guard dog and your cat serves as pest control.
If you have a service animal, you may get a tax break under the medical expense deduction. You can write off food, training, and vet bills, but I'll need a list of his hours worked. Here you go. Can you use your pets?
to get a lower tax bill? In very, very limited circumstances. So first, the idea that your pet is somehow a business expense, we can dispense with that pretty easily. Yeah, come on. It's a pet. Unless it's a real guard dog at a business or a dog actor, the IRS isn't going to go for that. But Goldberg says there are some circumstances that would let a
a person without a business claim a tax write-off for their dog. And that gets us to this section's larger learning about the way taxes work.
You see, taxes aren't merely a way to fund the government. The tax code is also a sneaky policy tool. It's a way that lawmakers, that Congress, can incentivize certain behaviors. Like donating money to charity. They let you deduct charitable giving from your taxable income. They also incentivize homeownership and buying electric cars.
And there are tax breaks for certain groups of people. Like for families, there's the child tax credit. There are also special breaks for veterans and for people with a bunch of medical expenses. Which brings us back to the dogs. If you have a service dog, right, you're an individual who is blind or, for example, has seizures and your dog is there to help. One of those sweet ones who like goes right next to you so you fall on it instead. I love that. Exactly. Yes.
If you have that kind of dog and you have a diagnosis, you have a medical recommendation, you can qualify for a medical expense for that pet. However, right, in that case, it's technically not considered a pet. It's considered a working dog. Right. And these are going to be very limited cases, not the emotional support animal kind of thing, right? You have to have a serious condition. Uh-huh.
There's a lot of emotional support animals around where I live. I'll tell you that much. So those don't count. Also, you are only eligible if your medical expenses meet a pretty high threshold. So it's not really a thing for most people, which is something you could say about a lot of the tax advice on social media. A lot of it points people towards these kind of niche deductions.
But for the vast majority of people, claiming a bunch of deductions is just not going to be worth their while because of what's called the standard deduction. If you have filed taxes, you know this one. This is what your tax preparation software, your tax preparer usually pushes you towards. For most of us, even myself, right, I end up using the standard deduction. Yeah, even a former IRS tax lawyer uses it.
The idea of the standard deduction is that there's this certain threshold under which Congress doesn't want you to worry about saving all your pet food receipts or your losing lotto tickets. It's not worth your time, and it certainly is not worth the time of some IRS tax examiner. So Congress gives you a get-out-of-itemizing-free card. Rather than add up all your deductions, you can just take the standard one. For 2023, that's $13,850 a person.
If you have fewer deductions than that, it's just not worth it to be fussy with your taxes. Coming up after the break, the Internet's favorite tax write-off for big luxury vehicles.
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This message comes from NPR sponsor, Quince. Even on a budget, you still deserve nice things. Scoop up timeless high-quality goods for 50 to 80% less than similar brands with Quince. Go to quince.com slash style for free shipping and 365-day returns. All right, so we've been through a couple kinds of questionable internet tax advice, like reducing your taxable income through gambling losses and when your dog's expenses can be a tax write-off,
And what we've learned is that those things, they are real. They're just so narrowly applicable that most people who try them might end up doing tax fraud. Today's final category of TikTok tax advice, which is definitely the biggest category you'll see out there, is videos that encourage people, sometimes with a literal wink and a nod, to call their personal expenses business expenses.
Our guide to that world, University of North Carolina professor Jeff Hoops. And where are we speaking to you from today? So I am broadcasting live from the Tax Museum. The Tax Museum is home to all sorts of tax-related paraphernalia.
Little IRS trinkets, anti-IRS baseball caps. Old political ads, cartoons. And Jeff, he is the museum's curator. He's also the CEO. He's kind of the janitor, too. My office and the museum are co-located. Yeah, the museum is just a bunch of stuff that Jeff has collected that he keeps in his office. I talked to a lot of tax nerds in the past couple of weeks, but Jeff is by far the most into it.
And I called him up to talk about the undisputed heavyweight champion of TikTok tax advice, the so-called G-Wagon deduction. It has to do with this luxury SUV, the Mercedes G-Wagon, which is very big and very, very expensive. Have you heard of the G-Wagon tax deduction? One, two, three.
- Three G wagons. Now why do I have so many G wagons? - Why do all rich people drive G wagons? This is secret information that the rich keep very closely guarded. - G wagons can cost 200,000, but here's how it could save you tens of thousands. - 6,000 pounds qualify the car for section 179 that allows business owners to write off the car as an expense. You can take the deduction even if you finance the car. - Bobby, when I heard this, I was like, wow, do I need a G wagon?
What do we need to know about the so-called G-Wagon tax deduction? The old G-Wagon tax deduction. The oldest deduction in the book.
The founding fathers gave it to us in the Constitution, actually, the fact of the matter is. All right. What we're talking about here, as I mentioned, is business expenses. And all kinds of cars can be business vehicles. But the tax code views the sports car that the dentist uses to bop around between clinics differently than a delivery van. It gives vehicles that seem like real work vehicles a special tax deduction.
But where do you draw the line? Jeff says the rule Congress came up with kind of boils down to this. It's better if it's heavier. It's better if it's heavier. Seriously, 6,000 pounds is where Congress drew that line. And so they said if it's a passenger vehicle, if it's a small little car, you can't take as much depreciation as if it was big. Yeah, the special little tax benefit Congress gives big cars has to do with this idea of depreciation.
And we know what depreciation is. After you drive your car off the lot, its value drops and it keeps dropping the older the car gets. It depreciates. And this G-Wagon thing, it has to do with how depreciation gets accounted for. If you have a lighter car, you get to write off the depreciation gradually over time. But if you've got a biggie that weighs over 6,000 pounds, Congress lets you write off the depreciation way quicker.
The year after you buy that vehicle, you could write off a huge amount of what you paid. And that reduces your taxable income. But the problem with the £6,000 line is that with cars getting heavier and with all these super luxury SUVs we've got now...
Weight is not really the best way of dividing rugged work vehicles from everything else. And so where this TikTok video is coming in play is you can have a car over 6,000 miles
But that feels a lot like that sports car that Congress didn't want us to get as favorable treatment. When it is a Mercedes. Certainly it feels like that. When it's a Mercedes. So that is the so-called G-Wagon tax deduction. And it is a real thing. Though the deduction is less generous now than it was a couple years ago.
But the bigger thing to note is the deduction only works if you have a legitimate business and you need the car for it. You can't just give a wink and a nod to the IRS the way some of these videos suggest and write off a personal luxury vehicle.
The big tax evasion technique is to say that you're using something for business purposes, that you're just using for personal purposes. So to try to deduct things that are not being used to generate income, or rather you're just using them for your own pleasure. So that's fraud. That's fraud. One final thought to leave you with here today. Tax law stands alone in this one really interesting and kind of funny way.
If you mess something up on your taxes, and that means you've broken the law, you can actually use ignorance as a criminal defense. That is not true in other parts of our legal system. Which is to say, now that you've listened to this episode, you've got a little less plausible deniability when it comes to those tax forms you might be mailing in right now. Sorry about that. ♪
Hey, the Planet Money TikTok that I mentioned before. If you are on TikTok, I do really highly recommend it. Our folks there put out fact-based but also really funny videos. You can also find their videos on Instagram. We throw them up there too. This episode was produced by Emma Peasley with help from Willa Rubin, who also fact-checked this episode. Thank you, Willa. It was edited by Molly Messick and engineered by Sina Lafredo. I'm Nick Fountain. This is NPR. Thank you for listening.
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