7 Tax Truths Explained

At Taxmosis, we spend a lot of time helping families and business owners understand not just how taxes work, but also how to make smarter financial decisions around them. The truth is, most people carry around half-baked ideas about taxes that lead to bad choices.

Let’s bust through seven of the most common misunderstandings, with some real-life examples you can actually relate to.

1. Taxes Are Marginal

A big myth is: “If I move into the next tax bracket, all my income gets taxed at that higher rate.”

Wrong.

Example: If you make $100,000, only the income above the bracket threshold gets taxed at the higher rate. Think of it like a layered cake—each layer of income gets taxed differently. You don’t suddenly lose half your paycheck by making a few extra bucks.

2. Taxes Are Progressive

The more you make, the higher the rate you pay on the last dollars earned.

Example: Your first $10,000 might be taxed at 10%. The next $30,000 at 12%. The next $50,000 at 22%. And so on. The system is designed to take a bigger slice as your income rises.

3. Investment Gains Depend on Time

Not all investment gains are created equal.

Example: If you buy Tesla stock and sell it six months later for a profit, that’s short-term and taxed just like your paycheck. Hold it for more than a year? Congratulations—you qualify for the lower long-term capital gains rates. Same stock, same profit, totally different tax bill.

4. Deductions vs. Credits

These two get confused all the time.

Example: A $1,000 deduction might save you $220 if you’re in the 22% bracket. But a $1,000 credit cuts your tax bill by the full $1,000. That’s a huge difference.

5. Lowering Taxes Today Might Cost You Later

This one stings.

Example: You shove every extra dollar into a traditional 401(k) because it lowers today’s taxable income. But in retirement, when you pull the money out, you could be in a higher bracket. Suddenly those “savings” are more expensive than you thought.

6. Don’t Let Taxes Drive Every Decision

Business owners are notorious for this mistake.

Example: You buy a new $80,000 truck because “it’s deductible.” But if you didn’t need the truck, you just wasted $80,000 to save maybe $20,000 in taxes. That’s not smart math.

7. Most Don’t Even Itemize

Here’s the kicker: about 90% of taxpayers don’t itemize their deductions.

Example: That means your charitable donations, mortgage interest, or medical expenses often don’t lower your tax bill at all. Unless your total deductions are above the standard deduction ($29,200 for married couples in 2024), they don’t count.

Bottom Line

Taxes are complicated, but they don’t have to be confusing. The key is knowing how the system actually works—so you can stop making decisions based on myths and start making ones that save you money over the long run.

At Taxmosis, that’s exactly what we do. We help families and business owners cut through the noise, plan wisely, and keep more of what they earn.

Schedule a consultation today.