Common Tax Myths: Is It Time to Rethink How We See Taxes?

Tax season tends to bring out strong opinions.

Over the years, I’ve watched smart, hardworking people make long-term financial decisions based on tax ideas that weren’t quite right. Usually, it’s not intentional. It’s just something they’ve heard for years. But sometimes those assumptions lead to missed opportunities, extra stress, or decisions that don’t age well.

Let’s walk through a few common tax myths and talk about a better way to think about them.

Myth #1: The Goal Is to Pay the Least Amount of Tax This Year

Of course, you want to minimize taxes. That’s reasonable. But if the only question you’re asking is, “How do I shrink this year’s tax bill?” you can end up making short-term decisions that hurt you later.

I see things like:

• Deferring income without thinking about future brackets.

• Loading up pre-tax accounts with no plan for Required Minimum Distributions down the road.

• Passing on good opportunities just to keep taxable income lower.

Sometimes it actually makes sense to recognize income now at a reasonable rate. Or to do a Roth conversion in a lower-income year. Or to intentionally realize capital gains and spread income out over time.

If you focus only on this year, you may quietly end up paying more over your lifetime.

A better question is: What does this decision do to my total taxes over the next 10, 20, or 30 years?

Myth #2: My Business Should Show Zero Net Income

Many business owners take pride in paying as little as possible on their business income. If the tax bill is zero, or the business is showing a loss, it feels like a win.

But arbitrarily pushing net income down can create problems. Here are a few that come to mind:

• It can make it harder to qualify for loans.

• It can reduce your Social Security benefits during retirement.

• It can limit how much you’re allowed to contribute to retirement plans.

• It can subject you to an audit from the IRS.

More than that, it often means spending money just to avoid paying tax.

If you spend $100 just to avoid paying $30 in tax, you’re still down $70. That math doesn’t change.

Deductions should make sense for the business. They should support growth and long-term stability. A healthy, profitable business that pays reasonable tax is usually in a much stronger position than one that shows nothing on paper.

The real question is: How do I build something sustainable and profitable while handling taxes responsibly along the way?

Myth #3: Only Rich People Get Audited, So It’s Fine to Push the Envelope

 There’s this idea that audits only happen to ultra-wealthy taxpayers. So people tell themselves, it’s just a little cash. Everyone does that. The IRS won’t notice.

Taking cash under the table or inflating deductions isn’t creative planning. It’s tax evasion.

Beyond penalties and interest, there’s reputational risk. Especially for business owners, integrity matters. It’s part of the asset you’re building.

And in reality, aggressive behavior on the margins rarely changes your long-term outcome in a meaningful way. A solid tax strategy is about structure and planning, not hiding.

A better approach is simple: How do I use the tax code as intended, legally and thoughtfully?

Myth #4: I Shouldn’t Earn More Because It Will Push Me Into the Next Tax Bracket

This one never seems to go away.

I still hear people say they don’t want overtime or a bonus because it will “bump them into the next bracket.”

The U.S. system is marginal. It’s not all-or-nothing.

If you cross into a higher bracket, only the income above that threshold is taxed at the higher rate. The rest stays taxed at the lower rates.

For example:

If the next bracket starts at $100,000 and you earn $105,000, only that extra $5,000 is taxed at the higher rate. The first $100,000 doesn’t suddenly get re-taxed.

 There are some situations where phaseouts or benefit cliffs make things more nuanced. But in most cases, turning down income purely out of bracket fear doesn’t make financial sense.

Instead of worrying about the bracket, focus on the opportunity. Then coordinate your tax strategy around the higher income.

The better question is: How can I earn more and plan intelligently around it?

Myth #5: I’ll Definitely Be in a Lower Tax Bracket in Retirement

For years, the standard advice was to defer taxes because you’ll be in a lower bracket later.

That’s not always how it plays out.

Many diligent savers reach retirement with large pre-tax accounts. Then Required Minimum Distributions start. Add Social Security. Maybe a pension. Maybe taxable investments.

All of a sudden, retirement income isn’t small.

RMDs can push income higher than you actually need. Medicare premiums can rise because of IRMAA surcharges. Social Security can become taxable. And we can’t assume future tax rates will be lower than today’s.

For some people, retirement tax rates end up similar to, or even higher than, their working years.

That’s why tax diversification matters. Having a mix of pre-tax accounts, Roth accounts, and taxable accounts gives you options. Partial Roth conversions, intentionally filling lower brackets, and thoughtful withdrawal planning can make a big difference over time.

The Bigger Picture

Good tax planning isn’t reactive. It’s strategic.

When you shift the focus from minimizing this year’s bill to thinking long term, decisions get clearer.