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In this episode, we discuss the intricate relationship between inflation and taxes, a crucial aspect of personal finance. We explore how current economic conditions impact your tax strategy and highlight which tax-related items have been adjusted for inflation and which have not. Understanding these dynamics is essential for effective money management.
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The HUB https://teachingtaxflow.com/hub
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EPISODE SPONSOR
Strategic Associates, LLC
Roger Roundy
http://www.linkedin.com/in/roger-roundy-86887b23
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🎧 Listen on your favorite podcast platform:
👉 Spotify https://bit.ly/3KdmtJL
👉 Apple Podcasts https://apple.co/3ZkyEtX
👉 Amazon https://amzn.to/4qmdqa5
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- (00:02) - Understanding Inflation's Impact on Taxes and IRS Adjustments
- (03:15) - Tax Changes and Deductions Under the One Big Beautiful Bill
- (09:38) - Understanding Marginal Tax Rates and Their Impact on Deductions
- (15:23) - Generous Standard Mileage Deduction and Health Savings Accounts
- (17:05) - Maximizing Tax Benefits Through Strategic Planning and Contributions
Creators and Guests
What is Teaching Tax Flow: The Podcast?
Welcome to “Teaching Tax Flow: The Podcast”, the show that’s all about demystifying taxes and helping you keep more of your hard-earned income in your pocket.
Hosted by tax experts from the Teaching Tax Flow team, this unfiltered (but clean) podcast is designed to empower you with the knowledge and tools you need to confidently navigate the world of taxes. We’ll cover everything from understanding tax laws and regulations to maximizing deductions and credits.
In each episode, we’ll break down a specific tax-related topic in a clear and accessible way, providing practical tips and strategies you can use to optimize your tax situation. We’ll also answer listener questions, share the mic with amazing guests, and share real-world examples to help illustrate key concepts.
Whether you’re a freelancer, small business owner, real estate investor, or just looking to understand your taxes better, this podcast is for you. So tune in, take notes, and start building your confidence in taxes today.
Produced and hosted by Teaching Tax Flow.
www.TeachingTaxFlow.com
Hey, everybody, and welcome back to the Teaching Tax Flow podcast today, episode 181. We are gonna do a little comparison and talk about what inflation has to do with your taxes. So of course, you probably imagine that there's a lot of relation to it somehow, but some things have not actually been adjusted for that in some time. And couple of them have recently, a couple of them are on the horizon. We're gonna get into these specific as always.
John Tripolsky:Chris Picciurro, welcome back to your own show, sir. How's it going?
Chris Picciurro, CPA:It's going well, and I'm excited about this topic. This topic, a lot well, first of all, a lot of the topics are driven by our community, which is what we call defeating taxes, our private Facebook group, or people making comments in our YouTube videos, or people just messaging us. Maybe they read our new book that came out. Maybe they just have ideas. But this is really interesting.
Chris Picciurro, CPA:This topic came to me. I will I I remember I went downstairs at the I have a home office here. Went downstairs, and my 12 year old that's in sixth grade was learning about economics and that sort of stuff and money at school. And he said, dad, I'm a little worried about inflation. So, I thought, okay.
Chris Picciurro, CPA:If you're worried and you're 12 and then sixth grade, maybe people don't understand what inflation is and more importantly, how the tax code adjusts for it. And and a lot of people don't understand that the IRS has the authority to make inflation adjustments to various deductions and credits year to year and how that process works. So, yeah, we wanna take the time. It's kind of an interesting time of year where a lot of tax returns are being prepared at this point, and, also, we have a lot of extensions being prepared. And on my end, on the tax planning and strategy, John, I've already started working on twenty twenty six tax plans.
Chris Picciurro, CPA:So I'm taking these things into account. And, so we let's because if we if we wait longer into the year to talk about the 2026 adjustments for inflation, then, ugh, it just gets too late. So you don't have to worry. You don't have to scour the IRS website or its thousands of publications and tens of thousands of pages. We're to break down these key changes for you on the podcast today.
John Tripolsky:And a lot of these, right, like, when when people hear inflation, I'm sure the first things that come to their mind, right, is it's probably groceries, you know, a lot of the consumable goods that, you know, they they're they're getting all the time. You know? So they're thinking about, like, oh, I'm almost to that point now where I'm like, you know, back in the day. You know, I I I don't think this really dates myself, but maybe it does a little bit. I remember when gas hit $2 when I got my driver's license in '16, and I don't think it's ever come back down since.
John Tripolsky:But unrelated to this, let's bridge the gap. Right? Because, again, taxes are one thing, and should say IRS tax over here and inflation over here. Again, there's probably a mental disconnect with most people, myself included in some time. So let's break into a couple of these.
John Tripolsky:I know some of them are pretty common. You know, we've seen maybe or a couple a little bit, come back down, go back up. So let's chip away at them. Let's see what you got here.
Chris Picciurro, CPA:Absolutely. Well, the first thing to remember is that everyone gets a standard deduction that prepare that has a that that has a tax return prepared, even if you're dependent on someone else's tax return. And, that standard deduction has greatly increased with the Tax Cuts and Jobs Act and One Big Beautiful Bill Act. Now with the passing of the One Big Beautiful Bill Act, we and you've sure you've seen this in our other content, We're expecting millions and millions of more people to itemize their deductions with the increase of that salt tax reduction. Now, John, if you don't know what the salt deduction is, you just gotta moonwalk backwards a little bit and check out one of our previous episodes, but state and local income tax.
Chris Picciurro, CPA:So but everyone gets the opportunity to take a standard deduction. That standard deduction has increased. So if we look at the last ten years, way more people are taking the standard deduction now than they did ten years ago. Another wrinkle with the one big beautiful bill act, and it's in another one of our podcasts. We talked about changes to charitable contributions.
Chris Picciurro, CPA:There's gonna be a new charitable contribution deduction for non itemizers, and there's gonna be some changes to the charitable deduction as well. So, again, I think we're gonna have more people itemizing or more people taking the standard deduction than itemizing in 26 verse 25. What does that mean? Well, that means that every taxpayer gets a standard deduction. That means that the standard deduction represents the amount of income that you can earn taxable income before you start actually paying any type of federal tax on that income.
Chris Picciurro, CPA:Now I'm not talking about self employment tax. I'm talking about federal tax. So for a single taxpayer or someone that's filing married separately, that amount bumped from $15,007.50 up to $16,100 in 2026. Now I'm not when we go through all these, I'm not gonna tell you how much it bumped. We're gonna focus on these 2026 numbers because we don't wanna do list radio here.
Chris Picciurro, CPA:What we're saying is, look. At $16,100, you can earn that amount of money, single or married filing separate, and not pay any federal income tax. It's pretty that's a high number. For Mary Joynt, it's over $32,000 this year, and then for someone that's had a household over $24,000. When I say this year, that means the 2026 tax year.
Chris Picciurro, CPA:Of course, those returns are going to be prepared in 2027. So those higher standard deductions, we see across the board. Another now the next change, was implemented in one as part of one big beautiful bill act, but is a major jump. The estate tax exclusion went from below a little below $14,000,000 all the way to $15,000,000 in 2026, meaning you could have up to $15,000,000 in your gross estate as far as assets, and when you pass away, pay no estate So that's really an interesting bump, and that's, you know, there's there's a lot of things to consider there with estate tax. And with that estate tax continuing to increase, it's much more generous for for wealthier or high asset households.
John Tripolsky:Question for you really quick on the standard deduction. Just so in in case anybody's say they've already they've had somebody do their compliance, so they've done their prep all these years. They've never really done it. This might be the first time they've heard about it. Let's assume that they've taken that standard deduction for a number of years, whether they've known it or not, for their understanding of it.
John Tripolsky:So that standard deduction does not include, say, they have a number of credits that are coming in. Right? Like, those are two totally different things. Right? So let's say, you know, the, you know, standard deduction is x, and then they have, say, $5,000 in other credits from elsewhere.
John Tripolsky:That's on top of that. It's not one or the other, we should say.
Chris Picciurro, CPA:So credit and deduction are completely different things. And I think we might even gosh. We'd have to look back. I feel like that was one of our first podcast, so maybe we need to revisit.
John Tripolsky:Yeah. So looking at a list of, like, I remember doing this show, and it was great because we were getting a fair amount of questions earlier on, I think, when we started that Facebook community of people asking to clarify between the two of them.
Chris Picciurro, CPA:So it was it was great. Yep. So you could have deductions and credits. A credit offsets tax. So, typically, a credit's gonna be better than a deduction.
Chris Picciurro, CPA:Some credits are what are called refundable. Some are nonrefundable, but a deduction is a is the amount that you can reduce your income before we calculate the tax. So, but yeah. So, John, you know what? We're gonna have to do another, quick tip.
Chris Picciurro, CPA:I'm sure you can check it out on the YouTube channel coming up. Redo that. I got a an idea on a visual aid, for that. So so yep. So those are those we're talking right now about deductions.
Chris Picciurro, CPA:And so that's the, which brings us into the next deduction. You remember it when we watched or listened to. And if you did, I hope you hit thumbs up or or like, the section one seventy nine deduction limit. It was, 2,500,000 for 2025. That went up to 2,560,000.00.
Chris Picciurro, CPA:So $60,000 of an additional section one seventy nine deduction available for businesses in '26 verse 25. The phase out went up $90,000. So if you're purchasing more than $4,000,000 of equipment or section one seventy nine eligible assets, that gets reduced. But the bottom line is for 99% of people, they don't purchase that amount of assets. Just know that that section one seventy nine deduction did increase.
Chris Picciurro, CPA:The qualified business income deduction, what we call QBI deduction threshold, increased also, meaning you can have more earnings, and still be eligible for a full QBI deduction. So for single, in other single, married, separate, had a household that's over $200, for married, joint, $400. So I know and if you're watching or listening, you're starting to think that's this is really getting complicated. It is complicated, and that's why one of the I'm I'm gonna go to the grave pounding my fist saying tax brackets lie to you. Okay?
Chris Picciurro, CPA:Your marginal tax rate is what you want to understand. I can tell you in our private CPA practice, we had business owners that were taking advantage of what we call that QBI, qualified business income deduction, and considering doing some very advanced, charitable giving. And that very advanced charitable giving provided them with a a deduction, that was very significant. However, their qualified business income reduction got reduced by almost the same amount. So in fact, the impact if someone was in a 30% or 28%, quote, unquote, tax bracket, it didn't mean they had a 28% tax benefit from the charitable contribution.
Chris Picciurro, CPA:So you've gotta work with your tax professional and figuring out what that marginal tax rate is and and how to plan around that. And that's where a lot of these you know, when you hear phase outs, and cliffs in the tax code, that's that's why these numbers are so important.
John Tripolsky:And, Chris, I'll add to that too. Right? For for anybody that's listening or watching this, I'm being a 100% transparent here. Until maybe four three, four years ago, I even thought that tax bracket was it. I didn't even know that marginal tax rate really existed.
John Tripolsky:And then you start to learn more of it. It really is your tax bracket is full of, you know what, really, at the end of the day. Because like you said, that marginal tax rate is something that you can truly control. Right. And you know where you're at, and you know what to do to really frankly adjust it how you need or how you can.
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Chris Picciurro, CPA:A real conversation I had yesterday with someone that's that's part of the Teaching Tax Tool community, extremely intelligent person, and they're gonna start working with a private CPA firm. They have several short term rental properties that they own and manage, and they for the first time ever, because they did a cost segregation study, and it was for a property they purchased three years ago and have been running. And the deduction, was significant. It's about $100,000 deduction that they're gonna receive, and the person said, hey. I think that that's gonna drop me to the 24% tax bracket.
Chris Picciurro, CPA:They've lived in the 2832%. In this person, the bottom line of the person didn't understand that tax brackets lied us. Meaning, I said, that's true. You're in the your incomes you're you know, you're in the 24% tax bracket, quote, unquote. However or 22%, the $100,000 deduction wiped out all 20 income that was in the 32 rate.
Chris Picciurro, CPA:They didn't realize we have a progressive tax rate like steps. So once once you you're done with the 12%, you know, once that income in the 12%, quote unquote, tax bracket, the next dollar is now taxed at 22%. But if that person didn't realize that there that person thought that now all income's at 22%. In other words, when people think with their tax bracket as how all of their income is taxed, and that's completely untrue. And this is someone that has owns and operates properties, is very intelligent.
Chris Picciurro, CPA:I've known for a long time, and but the person was never working with a tax professional that had that that had a a little bit more knowledge about that. And and quite frankly, if you're listening or watching and you're working with a really good tax professional, they have that knowledge. This is an advocacy for our private CPA firm. We know, as you know, John, we have somewhat limited capacity. It's just a point of the misconception out there.
Chris Picciurro, CPA:One of the myths that we talk about in our defeating taxes book that that it's just we just say we live in a weird system. It doesn't make you know, it doesn't necessarily make sense. It's kind of the inverse of a of a of a deal at the at the store. Right? So let's say, John, we run-in.
Chris Picciurro, CPA:You and I were on the pickleball courts all morning. You're sweating. And, we go to get a a, you know, Powerade Zero, and it's like $3. And but then it says, hey. You can get two for $5.
Chris Picciurro, CPA:So that second one's ultimately $2. Right? I can't go to them and say, well, I just want one of them for $2.50. That's not how it works. That's the flip of the tax system.
Chris Picciurro, CPA:It's the cheaper prices are in the beginning, the more expensive price, I e, your taxes up higher.
John Tripolsky:It's a great analogy. I've never heard you say that one yet, but it's totally true.
Chris Picciurro, CPA:Oh, I just came up with it now. But we'll make a reel on it when you come to town.
John Tripolsky:That is a great one. That really is a great one. And and really, like, circumventing it back and and really bringing it together. Right? So you have inflation, you have tax, and then MTR.
John Tripolsky:So marginal tax rate and tax rate. So we talked about everything there, but, really, it it comes down to truly understanding at its root. Right? Yep. Tax brackets, what the value that those are, marginal tax rate, but then also, like, how a lot of these change with inflation.
John Tripolsky:Right? Somebody might say, wow. You know, I was making x number of dollars three years ago. Now I'm making more. Say they're a w two full time employee.
John Tripolsky:Mhmm. And they're making more, but, you know, they might feel like they're making less because of of inflation with costs on other items. But now with the, you know, deductions and everything really kinda creeping up in most cases to be adjusted for inflation, helps them out even more. So not saying it brings them back down to where they were three years ago or x number of years ago, if any of this makes sense, but it it's nice to see things being adjusted for certain things. I know we'll get into, you know, one that I think is probably one of the most popular ones with business owners is a standard standard mileage deduction.
John Tripolsky:Absolutely. Change. Correct?
Chris Picciurro, CPA:Yeah. We're gonna wrap up with three more. Okay? The first one you nailed at standard mileage deduction. So for businesses, extremely generous going up from up to 72 and a half cents per mile on on that for that standard mileage reduction on businesses up from 70.
Chris Picciurro, CPA:So that's a big change. Charitable stayed the same. A medical actually went down a half cent but the standard business standard mileage deduction for businesses, 72 rent. So let's think about that, John. Let's say you own a vehicle.
Chris Picciurro, CPA:I'm gonna try to do some mental math that gets I mean, what's the average vehicle get? Is it, I mean, maybe 20 miles, 25 miles a gallon?
John Tripolsky:Let's just say 30. We'll give it an even number.
Chris Picciurro, CPA:Alright. 30 miles a gallon. It's 72¢ a mile. Right? For every gallon of gas, you're getting a $21.75 deduction at $30 a gallon, much more than the cost of actual gas.
Chris Picciurro, CPA:Now this bakes in maintenance, repairs, etcetera, etcetera. So that's a very generous standard mileage deduction. Two more I wanna hit on as we wrap up. Health savings account. We know I love health savings accounts.
Chris Picciurro, CPA:I've fallen in love with them over the last two years as I've dove in to even deeper tax planning and strategy. I call them the triple threat being here in the beautiful state of Tennessee, the tristar state, tax deferral, tax free growth, tax free distribution for us an individual or self owned HSA plan. It's up to $4,400 per year. For a family, $87.50. That's and and again, if you're thinking about the HSA, even if you don't need it, put the money in if you could afford it.
Chris Picciurro, CPA:You're gonna need it later. My wife and I made a mistake early on before we had kids. We were relatively healthy. We, you know, we put some money in the HSA. We never maxed it.
Chris Picciurro, CPA:Now we have three kids that are teenagers, and it's like, oh gosh. You know? And we're falling apart too. So we wish we would have put more into them. We always utilize that that family max.
Chris Picciurro, CPA:Final one, and I think we'll probably dive into this a little deeper later on in the year, but all of the retirement plan contribution limits increased. So your four zero one elective deferral is up to twenty four five. If you have a defined contribution plan, that's up to 72,000. So our business owners, those high income business owners, we could really put more money away. IRA contribution, both Roth and traditional combined up to $7,500.
Chris Picciurro, CPA:So we saw a we see a modest increase in retirement plan contributions, which is for a long time, those were flat, really flat. So yes, so all these things come into play whenever we're doing tax planning and strategy. If any of this has hit you or you feel like I want to learn more or you know someone or have a loved one or family member you think could benefit from this, John, what should they do?
John Tripolsky:Oh, about five different things I could think off the top of my head. For share the podcast with them for one. Lots of information. But there's gonna be some links in the show notes. We'll drop them in there as well too, some resources for me.
John Tripolsky:And, Chris, I think a great quote, I think I'm not gonna get it exactly correct as you always do, but some of always say, right, is taxes are not something that happens to you. It's something that you really can control, and this is a big part of it. Right? You mentioned some things in there now that are gonna be more much more beneficial this year than they were even the previous year, and it's it's been happening year over year a little bit. But I think, you know, somebody having a place such as ourselves, everything that we do, we put out there for free.
John Tripolsky:Everybody can consume the stuff, tag it, share it, comment on it, whatever you want. Just keep it handy. I'm not saying you you as the listener audience has to become the the tax professional yourself, but, you know, it might trigger some ideas. And if anything, you know, even if you're not getting Chris, like, know, you do a ton of the tax planning and strategy. Even if somebody doesn't have right, just them knowing some things and they can kinda get comfortable with.
John Tripolsky:I mean, if anything, it's a it might be a motivation for somebody to start putting into their retirement, start putting into an HSA. It's all about understanding it. Right.
Chris Picciurro, CPA:What yeah. One of the and we did one of the case studies in the defeating taxes book, just go to defeatingtaxes.com if you're lost, was that younger teacher, thinking that that she doesn't really need tax planning and can't benefit. And just that modest amount of Roth contributions can go a long way. So, absolutely, we appreciate your time today. Hey.
Chris Picciurro, CPA:You got a show topic idea? Let us know about it. You got a comment? Let us know about it because this is a community driven podcast.
John Tripolsky:Absolutely. Absolutely. As Chris mentioned there, there's a resource there for you. Don't be lazy. Check them out.
John Tripolsky:I'm looking at just a list of some topics that we actually have pretty much scheduled out almost to August. We're looking at a couple of them. It is a great mix between those four growing families, individuals, business owners, retirees, all kinds of stuff. We have topics that really tie everything together. So as always, we thank everybody here for joining us here on the Teaching Tax Flow Podcast.
John Tripolsky:We'll see you again back here next week. Have a great weekend.
Disclosure:The information in this podcast is educational and general in nature. It reflects the opinions of teaching tax flow and does not take into consideration the viewer's personal circumstances. It is not intended to be a substitute for individualized financial, legal, or tax advice. Consult the appropriate qualified professional prior to making any decisions. Are offered and supervised through Cabin Securities Inc member, FINRA SIPC.
Disclosure:Investment advisory services are offered and supervised through Cabin Advisors LLC, an SEC registered investment adviser. Chris Picciurro is a registered representative of Cabin Securities and an investment adviser representative with Cabin Advisors LLC, Teaching Tax Flow is an independent entity and is not affiliated with Cabin Securities or Cabin Advisors.