How to spot bad tax advice
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Bad tax advice is not a new phenomenon. Years ago, I can remember hearing a small business owner explaining that making a single comment about his business before dessert allowed him to deduct a dinner out with his wife. According to his logic, his one-sentence remark about work made the meal a business expense.But this kind of spurious tax advice used to only come from your divorced uncle or sweaty strangers at parties. Then along came social media, offering a vast platform to people who have no idea what theyre talking about. Reasonable-sounding tax tips can go viral, leaving taxpayers who follow them vulnerable to some serious consequences.No matter where youre getting your tax guidance, its important to know how to recognize bad advice. Heres how to identify crappy advice before you follow it all the way to an audit.Go straight to the sourceYou probably dont feel superconfident about your understanding of taxes because they are so complex. The U.S. federal tax code is 6,871 pages long (single-spaced, 11-point font, and mostly likely printed in Comic Sans because irritating is as irritating does).There are probably a significant number of tax attorneys who dont know everything in the legislation, which is a great reason why you should be leery of any random TikToker giving tax advice.Since youre not going to be taking the tax code on your next vacation for some light reading, you need to know where to go for credible information about your taxes. Believe it or not, the IRS.gov website is an excellent resource for regular taxpayers.Not only does the IRS website provide an annual list of the Dirty Dozen most common tax scams to be aware of, it also offers a list of trusted partners for tax preparation and filing, as well as step-by-step instructions on how to file your taxes. You can also use the IRS.gov search tool to look up any dodgy tax advice to see if it passes the sniff test.Uncle Sam has provided us with a valuable tool in creating and maintaining the IRS website. We should make use of itwhile we still can.Beware of conspiratorial thinkingA lot of bad tax advice starts by suggesting that the adviser will be letting you in on a secret that only the smartest and richest people know. The implication is that the vast majority of sheep-like taxpayers dont know about these tips and pay the IRS far too much of their hard-earned money every April. But you, random person scrolling TikTok on the toilet, are much too smart to fall victim to that!While it is certainly true that rich people successfully avoid paying income tax, thats because theyre rich and not because they know something you dont. A billionaire can afford to have a team of CPAs and attorneys working year-round to identify and exploit inconsistencies in the tax code.Theres a reason this kind of appeal is so seductive: we love feeling like were part of an exclusive group of intelligent people, especially when we feel helpless against larger forces (like the U.S. tax code). This is the same reason why conspiracy theories feel so satisfying. They allow us to feel superior to those who arent in the know.But there are no secret hacks that normal people can use to avoid paying taxes. Any tax advice that implies otherwise is basically a conspiracy theory.Reject urgencyWhile some bad advice is just evidence of the advisers ignorance, theres also a thriving cottage industry of tax scammers who use the stress of tax season to line their pockets. The 2024 tax season saw an estimated $5.5 billion in tax fraud, usually through phishing, among other identity theft tools.One of the best ways to avoid falling victim to tax scams (or any other type of scam) is to slow down. Most scams use a sense of urgency to get their victims to abandon their skepticism. Were all a little nervous about getting our taxes done accurately and on time, so were vulnerable to a demanding email, text, or phone call from someone purporting to be from the IRS. We feel time pressure, so we hand over our personal information.Similarly, an offer to do your taxes for youbut only if you ACT NOW!!!can activate our financial FOMO. Its easy to comply without thinking because the ticking clock makes you feel like you have no choice but to act quickly.If you find yourself hurrying to do something tax-related because of an unknown third party, force yourself to stop and take 24 hours before you act. That gives you time to research the adviser, phone call, or other contact who set off your all-fired rushand it gives your prefrontal cortex the time to override your lizard brain.Dont make taxes any harder for yourselfFiling your taxes is difficult enough without adding audits, fraud, and scams. You can avoid bad tax advice by familiarizing yourself with the IRS.gov website, recognizing when advice sounds conspiratorial, and just saying no to someone insisting that you have to hurry.Doing that may not make tax season any more pleasantbut at least it will protect you from even bigger problems down the road.
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