Social Media & Associates, LLP – Accountants and Tax Advisors

We recently spoke with the president of a major firm who showed me a viral video he had seen on a social media platform like Instagram or TikTok regarding tax advice. I was initially surprised that someone at this level would be taking advice from a social media platform seriously. When I asked him about it, he explained that the firm has found tremendous engagement on these platforms from consumers, and he himself gathers a lot of information from them—certainly not something I expected to hear.

I watched the video he sent, which discussed the tax benefits of a private foundation for high-net-worth individuals. To my surprise, the video was technically accurate regarding the tax code, but it seemed designed to spark engagement with the content creator and did not present the “full story.” After watching, I reviewed the information with the president of the firm. He now better understands the tax strategy at play, but he also felt that what he was shown and what I explained were very different.

Since then, we have seen a significant influx of clients sending us social media posts that make various tax and financial advisory claims due to social media algorithms. Some of the more common claims we have encountered include:

• Private Foundation: The videos claim that taxpayers can shelter 30% of their income from the IRS by using a private family foundation. This statement is factual since donations from individuals are deductible up to 30% of their adjusted gross income. However, it is important to note that a donation to a private foundation legally means the money no longer belongs to the taxpayer; any private inurement or benefit for an individual is prohibited and could incur substantial excise taxes. For taxpayers with charitable endeavors, a foundation can make sense; however, it is not as simple as creating a foundation, making a donation, and still having the funds available for personal use.
• Rental Income – Section 280A – the “Augusta” Rule: Named after the famed city where the Masters golf tournament is held, the Augusta Rule allows taxpayers to exclude up to 14 days of rental income from taxation. While this is technically accurate and valid tax advice, most homeowners may not be inclined to rent out their property or generate enough income to make this strategy particularly beneficial. These videos encourage taxpayers to rent out their homes to their businesses, which is permissible. However, taxpayers need to ensure there is a valid business purpose, fair market rent, and a written agreement, among other compliance requirements. Many of these ideas may present challenges regarding the validity of renting the entire house for business purposes.
• Adding Children to Payroll: This is a common and valid tax strategy that many families have used for years. This video encourages business owners to put their children on payroll to start funding IRA (typically Roth) accounts for them. This practice is perfectly allowable—the premise of the video suggests that by doing so, the child could accumulate a retirement account exceeding $1,000,000, which may be true under certain market assumptions. However, it’s essential that the children are genuinely working for the business and fulfilling appropriate roles (e.g., please don’t have them serve as your bookkeeper). Individuals need to keep this in mind.
• Having Assets Owned by Trusts: These videos often depict an overly convoluted structure using family trusts and LLCs, making bold claims that such structuring results in no tax liability. Broadly speaking, there is no structure where an individual can receive income without eventually paying tax. While the claim may be valid in that the individual doesn’t pay tax, the trust may still be liable. Trusts can be powerful tools for estate planning; however, videos of this nature are generally misleading.

As tax advisors, we continuously seek ways to help clients minimize their tax burdens. That said, we also consider the practical implications of these strategies. Spending $1 to save 50 cents in taxes has never been a viable wealth-building strategy—the tax may be avoided, but you could end up in a worse economic position. We strive to see the whole picture and ensure our recommendations provide meaningful and long-term impacts, not just sound bites for social media platforms.