The internet offers an unprecedented amount of information of varying quality on virtually every topic, including taxes and finance. With the rise of artificial intelligence (AI), many business professionals may be lured by the easy access to online financial guidance that seems customized to their needs. However, this convenience comes with significant risks. Just as self-diagnosing medical issues online can be harmful, relying solely on online tax advice can lead to serious financial consequences.
Persistent Bad Advice and Its Risks
Bad tax advice has always been prevalent online. AI and social media haven’t eliminated this issue—they’ve only amplified it. Here are a few examples of how bad advice can lead to costly errors:
- Incorrect Tax Break Claims: During the 2023 tax season, a viral TikTok video incorrectly claimed individuals could claim a $10,200 unemployment tax break for 2022, though this provision only applied to 2020. This misinformation spread rapidly, leading many to file incorrect returns.
- Misuse of Tax Credits: In 2022, numerous small business owners fell for an online scheme promoting the misuse of Employee Retention Credits. Many filed for credits they weren’t eligible for, resulting in audits and potential IRS penalties.
- Phishing Scams: During the 2024 tax season, a sophisticated phishing scam circulated on social media, posing as an IRS-approved tax preparation service. Users who fell for this scam had their personal and financial information stolen, leading to identity theft and fraudulent tax returns filed in their names.
To combat growing threats, the IRS publishes an annual “Dirty Dozen” list of the most prevalent tax scams, such as those mentioned above. The IRS uses this list to warn taxpayers about emerging threats and help them avoid becoming victims of tax-related fraud.
The Appeal and the Real Cost of Free Advice
Business professionals are always looking for ways to increase profit margins by cutting costs and operating more efficiently. Free, easily accessible financial advice is tempting but can be deceptive. Bad tax advice can lead to severe financial consequences that negate any initial savings:
- Audits and Penalties: A freelance consultant relied on an AI-powered tax preparation tool that incorrectly classified her business structure, resulting in underpayment of self-employment taxes. The subsequent audit, penalties, and interest far exceeded what she would have paid for professional tax preparation.
- Missed Opportunities: A tech startup in California relied on generic online advice for R&D tax credits, missing out on substantial state-specific incentives that a local tax professional would have identified. This oversight potentially cost them hundreds of thousands of dollars in tax savings.
The Value of Professional Advice
While the internet offers abundant information, it can’t replace personalized professional advice. The value of consulting a qualified accountant includes:
- Tailored Solutions: A good professional accountant will learn your business so they can provide nuanced, up-to-date expertise and tailor advice to your specific financial situation.
- Compliance and Optimization: They ensure compliance with tax laws and help optimize financial strategies, identifying legitimate deductions and credits often overlooked by generic online advice.
- Long-Term Stability: Investing in professional financial advice supports long-term financial health and stability, avoiding the pitfalls of bad advice and costly mistakes.
Looking Ahead
In an era where AI and the internet promise quick solutions, recognizing the limitations and dangers of online tax and financial advice is vital. While the internet can provide general information, it’s no substitute for the nuanced expertise of a qualified accountant who understands your specific financial situation and can navigate the complex, ever-changing landscape of tax law. With so much misinformation muddying the waters, consulting a reliable financial services professional has never been more crucial for businesses looking to avoid costly mistakes.
Ben Staples joined ARB as a tax supervising senior in 2023 and became a tax manager in 2024. He provides tax compliance and consulting services, with a focus on pass-through entities and clients in the automotive dealership industry.
