Ten Myths Most Tax Payers Believe

Ten Myths Most Tax Payers Believe

October 19, 2022

Taxes, UGH! Many of us feel overwhelmed by the complexity of tax laws. Yet managing how much and when we pay our taxes is critical to achieving many of our goals. To overcome this hurdle, we need to identify myths we hold regarding taxes.

1. There’s nothing I can do about the amount of tax I owe

The tax code is full of CHOICES we can make to ensure we aren’t tipping the IRS. Withholdings, filing status, qualified accounts, business structure, the timing of income, and the list goes on. Don’t choose inaction.

2. There’s nothing I should do about the amount of tax I owe

There are no patriotic awards for paying extra to the IRS. You should only pay what you owe and look for every opportunity to owe less. Proactive tax planning gives you more control over spending your hard-earned dollars.

3. Getting a refund means I’ve won the tax game for the year

A refund is just an interest-free loan to the IRS. That’s it. It tells us nothing about how much the IRS kept. Taking intentional steps to reduce the total tax the IRS keeps is how we can get ahead and stop leaving the IRS a tip.

 4.  All CPAs are tax planning experts

CPAs spend most of their time on compliance, filing the forms annually.  A tax preparer can be a great resource, but it does not mean you have someone looking for proactive planning opportunities.

5.  It’s too early to worry about my Retirement Tax

Many tax savings opportunities are capped annually on how much you can benefit from them. The earlier someone starts being intentional about taxes, the better.

 6. Tax experts write tax laws

Tax laws come from politicians. Period. Tax laws are about generating revenue and influencing behavior. The back-door Roth was created by accident. This means you can’t make assumptions about what is “logical”; that is not how the tax code was written. You or your team must be dedicated to tax planning to get the total value from the process.

7. Tax laws are constantly changing, so there’s no point in planning for the future; it’s all just a guess

See Myth #1. Doing nothing is still a choice. Acting on proposed changes has heightened risk, and any tax planning (like all planning) must include the risk of change.

8. My employer doesn’t offer a 401k, so I can’t contribute to qualified retirement accounts

There are numerous ways employees and business owners can take advantage of qualified contributions. There are also non-retirement accounts, such as health savings accounts, that taxpayers can take advantage of whether offered by an employer or not.

9. I have a CPA; I don’t need a financial planner

See Myth #4. There are, of course, exceptions, but not many. Having a CPA in your corner is great, but having a CPA on your team does not mean you have a tax planner. If you hold tightly to this myth, ask yourself, “what did your CPA tell you when they reviewed your tax projection for the next year? Next five years?” In most cases, a tax preparer is not looking at projections.

10. $1,000,000 in my IRA means I can withdraw $1,000,000 when I retire

Deferring taxes is like having a variable rate mortgage with the IRS without any regulation on what the rates can be. Make sure you understand the tax liability that will eventually come due.

Disclaimer: All information contained here is hypothetical and for education only. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax, legal, or investment advice. It is purely educational in nature. Please consult legal, tax, or investment professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.