7 Myths About Taxes and Tax Planning You Can Say Goodbye to

Remember that sinking feeling as you stare down a stack of receipts and tax forms? Tax season can be stressful due to the looming deadline and the fear of underpaying or making a mistake. 

But what if we told you a lot of that stress comes from believing myths? Myths — like those stories we heard about monsters under the bed? 

Tax myths are just as untrue and can lead to big problems. You might miss out on saving money or even face penalties from the IRS.

Taxes don’t have to be a mystery. Understanding the truth behind some common myths allows you to take control of your tax situation.

Here’s the deal: taxes aren’t going anywhere. With some planning, you can ensure you’re paying the right amount and keeping more of your hard-earned cash.

The key is thinking about taxes beyond just the tax season. Smart tax planning happens all year long.

We’re talking about understanding basic tax concepts, keeping good records, and adjusting your paycheck throughout the year.

So, ditch the myths, and let’s get real about taxes. In this article, we’ll debunk the 7 biggest myths people have about taxes and tax planning.

By the end, you’ll be equipped to navigate tax season with confidence and (dare we say) maybe even a little less stress.

Myth #1: Taxes Are Too Complicated to Understand

Let’s face it, the IRS tax forms and codes can look intimidating. But here’s the secret: you don’t need a Ph.D. in accounting to understand the basics of taxes. Think of it like this — taxes are just a way for the government to collect money to pay for roads, schools, and social programs.

You pay your share based on how much money you make.

Here’s where things get interesting: tax brackets. Imagine a ladder with different rungs. Each rung represents a tax bracket; the higher you climb the ladder (the more you earn), the higher your tax rate. You only pay the tax rate for the rung you’re on, not for all the rungs below you.

For example, say you fall into the 22% tax bracket. That means you pay 22% in taxes on the portion of your income that falls within that bracket.

Any income you earn below that amount gets taxed at a lower rate or not at all.

Deductions, credits, and specific situations add complexity. But the basic idea—tax brackets and marginal tax rates—is straightforward.

Don’t worry, you don’t have to do it alone! Many resources are available to help you understand the basics of taxes. The IRS website has all the information, including clear explanations of tax brackets, deductions, and credits. They even have interactive tools to help you estimate your tax liability.

Professional help like the doola tax package is another excellent way to simplify tax filing.

The experts at doola walk you through the process step-by-step, asking you questions about your income, deductions, and credits. They can even help you find deductions you might have missed.

The bottom line: understanding the basics of taxes is totally doable. With some help from the resources available, you can ditch the myth and feel more confident about managing your tax situation.

Myth #2: Itemizing Deductions is Always Better Than the Standard Deduction

This is a common myth, but it’s not always true. Basically, you can choose between two options when filing your taxes — the standard deduction or itemized deductions.

The standard deduction is a set dollar amount you can subtract from your taxable income, regardless of your actual expenses. It’s a one-size-fits-all approach that works well for many people.

On the other hand, itemizing deductions allows you to deduct certain expenses from your taxable income, potentially lowering your tax bill even further. Common itemized deductions include mortgage interest, state and local taxes, charitable donations, and medical expenses.

But here’s the catch: there are limits on some itemized deductions.

Itemizing Deductions is Always Better Than the Standard Deduction

For example, you can only deduct a portion of your state and local taxes, and medical expenses only count if they exceed a certain threshold.

So, which option is better for you? Simple — it’s all about the math! Here’s an example:

Let’s say the standard deduction for your filing status is $12,550. You have $8,000 in mortgage interest, $5,000 in state and local taxes, and $2,000 in charitable donations.

If you itemize, your total deductions would be $15,000 ($8,000 + $5,000 + $2,000). Since this is more than the standard deduction of $12,550, itemizing would be the better choice in this scenario.

Don’t automatically assume itemizing is always the way to go. Keep records of your expenses throughout the year, and then compare your total itemized deductions to the standard deduction for your filing status.

This quick calculation will help you decide which option saves you the most money on your taxes.

Myth #3: I Only Need to Think About Taxes When It’s Time to File

Picture this: it’s tax deadline day. You’re scrambling to gather receipts, fill out forms, and maybe even face a hefty tax bill.

Waiting until the last minute is a recipe for stress and missed opportunities. Taxes shouldn’t be a once-a-year nightmare — they deserve your attention throughout the year.

Think of your taxes like a car; you wouldn’t wait until it breaks down before getting an oil change, right? Tax planning is your preventative maintenance.

Here’s why it matters:

  • By planning, you can identify opportunities to save on taxes yearly. This can make a big difference compared to one lump sum adjustment at filing time.

  • There are yearly deadlines for contributing to retirement accounts, claiming certain credits, or making estimated tax payments. Missing these deadlines can cost you money.

  • Proactive tax planning helps you estimate your tax liability throughout the year. This way, you won’t be shocked by a big tax bill come tax season.

So, what can you do throughout the year to stay on top of your taxes?

  • Contribute to retirement accounts: Putting money into a retirement account like a 401(k) or IRA can lower your annual taxable income.

  • Adjust your withholding allowances: This affects how much tax is taken from your monthly paycheck. By adjusting your allowances, you can avoid owing a large amount at tax time or getting a small refund.

  • Keep good records: Track your income and expenses throughout the year. This makes filing your taxes more manageable and ensures you don’t miss any deductions or credits.

Tax planning can get complex, especially with specific situations or investments. Consider consulting tax professionals like doola for personalized advice and a year-round tax strategy.

Myth #4: There’s No Point in Saving for Retirement Because the Taxes Will Take Most of It

This myth keeps many people from saving for their golden years. But here’s the secret weapon: retirement savings accounts offer significant tax advantages. Let’s break it down.

There are 2 main types of retirement accounts to consider: traditional IRAs and Roth IRAs. Both offer tax benefits, but in different ways:

  • Traditional IRA: Contributions to a traditional IRA may be tax-deductible, lowering your annual taxable income. This means you pay less tax upfront. Then, when you withdraw the money in retirement, it’s taxed as income.

  • Roth IRA: Contributions to a Roth IRA are made with after-tax dollars, meaning you don’t get a deduction upfront. However, qualified withdrawals in retirement are typically tax-free.

Imagine you contribute $5,000 to a traditional IRA every year for 20 years, and your investments grow at an average of 7% annually. Without tax-deferred growth, you’d pay taxes on those earnings yearly.

However, a traditional IRA allows your money to grow tax-deferred. This means your earnings compound each other, accelerating your retirement savings.

There’s No Point in Saving for Retirement Because the Taxes Will Take Most of It

Even with taxes on withdrawals from a traditional IRA, the tax benefits of tax-deferred growth can significantly benefit your retirement nest egg.

With a Roth IRA, the potential for tax-free retirement withdrawal is a powerful incentive to save.

So, ditch the myth! Saving for retirement with tax-advantaged accounts is a wise financial decision.

Myth #5: Filing an Extension Gives Me More Time to Pay My Taxes

This myth can land you in hot waters! Remember, a filing extension gives you more time to submit your tax return but doesn’t give you more time to pay any taxes you owe.

It’s like getting an extension on your homework deadline — you still have to do the assignment, just later.

Missing the tax payment deadline can be costly. The IRS charges penalties and interest on late payments. These fees can add up quickly, eating into your hard-earned money. Consider this:

  • Penalties: The IRS charges a failure-to-pay penalty of 0.5% per month, up to 25%, on any unpaid taxes. That means the longer you wait, the bigger the penalty bite.

  • Interest: The IRS also charges interest on unpaid taxes. This interest rate is compounded monthly, meaning it grows on itself, worsening the situation.

So, how can you avoid these nasty penalties and interest charges? Answer: estimated tax payments.

Estimated tax payments are like quarterly installments of your annual tax bill. You can make estimated payments to the IRS throughout the year to cover your tax liability. This way, you’ll not be stuck with a big tax bill in April.

Remember that even if you file for an extension, you’re still responsible for making estimated tax payments by the deadlines throughout the year.

The bottom line is to understand your tax liability and consider estimated tax payments to avoid unwanted fees.

It’s always better to pay on time or request an extension for filing while making your estimated tax payments.

Myth #6: Only High Earners Need to Worry About Tax Audits

The truth is that anyone can be selected for a tax audit, regardless of income level.

The IRS uses a variety of factors to choose who gets audited, and it’s not always about having a high income.

So, what triggers an audit?

Here are a few common reasons:

  • Mathematical errors: Simple mistakes on your tax return, like typos or miscalculations, can raise a red flag for the IRS. Double-check your math before submitting your return.

  • High deductions or credits: Claiming many deductions or credits compared to your income can catch the IRS’s eye. Make sure you have documentation to support any deductions or credits you claim.

  • Inconsistent information: Discrepancies between your tax return and the information the IRS receives from third parties (like employers or banks) can trigger an audit.

  • Random selection: Sometimes, the IRS selects tax returns for audit at random.

Being prepared for an audit is critical, no matter your income level. Save all your tax documents for at least 3 years, including receipts, W-2s, 1099s, and any documentation for deductions or credits.

Still, if you get audited, cooperate fully with the IRS and answer their questions honestly.

Only High Earners Need to Worry About Tax Audits

You can also consider consulting a tax professional for guidance and support. They can help you navigate the audit process and protect your rights.

Remember, an audit is not a punishment. It’s simply the IRS verifying the accuracy of your tax return.

Myth #7: Hiring a Tax Professional is Too Expensive

Let’s face it, taxes can be complicated. And the myth that hiring a tax professional is just an unnecessary expense can cost you money in the long run. Here’s why: Think of a tax professional as a financial detective.

They’re trained to uncover tax-saving opportunities you might miss on your own.

  • An experienced tax pro can identify all the deductions and credits you’re eligible for, potentially lowering your tax bill significantly.

  • Tax codes can change frequently. A professional ensures your tax return reflects all the latest deductions and credits.

  • Even minor errors on your tax return can lead to delays or penalties. A professional can help you avoid these costly mistakes.

But wait, aren’t tax professionals super expensive? Not necessarily! There are different types of tax professionals, each with varying fee structures.

Certified Public Accountants (CPAs) or Enrolled Agents typically charge by the hour or complexity of your tax situation. Online tax preparation services can be a more affordable option for more straightforward tax returns.

Plus, the money you save by finding deductions or avoiding penalties can often outweigh the cost of hiring a professional. Think of it as an investment in your financial well-being.

Beyond just saving money, there are other benefits to consider. Knowing your taxes are handled by an expert can take a huge weight off your shoulders. Tax professionals also save you countless hours of research and paperwork.

You can focus on what you do best while they handle the tax complexities.

Remember, hiring a tax professional isn’t just about the cost. It’s about getting the expertise you need to maximize your tax savings, minimize stress, and free up your time. So, don’t let the myth of high costs hold you back from exploring the potential benefits.

Ditch the Tax Myths and Simplify Your Filing With doola

Tired of believing tax myths that cost you time and money? doola can help!

Our tax package is designed for busy people who want to simplify their filing process.

We handle the complexities of tax code and deductions so you can focus on what matters most – your life, your work, or your hobbies.

No more scrambling to understand brackets or worrying if you’ve missed something.

Get started with doola’s tax package today and unlock effortless filing, maximize savings and peace of mind, so you can navigate tax season with confidence.

Still worried? We’ve got you covered!

Schedule a tax consultation with a doola CPA expert.

We’ll answer your questions and address your unique tax situation, ensuring you don’t fall prey to common tax myths.

Take control of your taxes with doola!

Don’t wait — ditch the myths and simplify your filing today!

doola's website is for general information purposes only and doesn't provide official law or tax advice. For tax or legal advice we are happy to connect you to a professional in our network! Please see our terms and privacy policy. Thank you and please don't hesitate to reach out with any questions.

Start your dream business and keep it 100% compliant

Turn your dream idea into your dream business.