5 Major Tax Misconceptions — Have You Been Misled?

When it comes to taxes, there’s no shortage of myths and misunderstandings. Some of them sound logical at first, but they can cost you money or lead you down the wrong path if you take them at face value. Here are five of the most common misconceptions we hear — and the truth behind them.

1. Tax Brackets Are Flat

Tax rates are graduated, not flat. Moving into a higher bracket doesn’t mean all your income is taxed at that higher rate — only the dollars above the threshold. Yet many taxpayers mistakenly think they need to keep income lower to avoid jumping brackets.

2. Creating an LLC Automatically Saves Taxes

An LLC is a legal structure, not a tax loophole. It offers flexibility in how you’re taxed, but deductions only apply when expenses are ordinary and necessary for business. Simply forming an LLC doesn’t create new write-offs or automatically reduce taxes.

3. Real Estate Always Lowers Taxes

Real estate can provide advantages, but it’s also complex, competitive, and highly localized. Losses in real estate are usually passive and can’t always offset other income. High-earners are often surprised when promised tax breaks don’t materialize. The real benefit comes from profitable, compliant investing with long-term strategy.

4. Gifts Are Taxable

In most cases, they’re not. Thanks to generous annual exclusions ($19,000 per person in 2025) and a lifetime exemption of nearly $14 million, most taxpayers can gift money without triggering taxes. Proper planning ensures neither giver nor recipient owes tax.

5. Tax Refunds Are “Free Money”

Refunds may feel like a windfall, but they usually mean you overpaid during the year. With IRS delays and automated notices on the rise, aiming for a refund of $0 is often smarter. That way, you keep your money working for you throughout the year — earning interest or funding opportunities — instead of letting the IRS hold it.