Teaching Tax Flow: The Podcast

In this episode of the Teaching Tax Flow Podcast, host John and tax expert Chris delve into a pivotal topic in taxation - the Marginal Tax Rate (MTR). Sponsored by Wealth Builders Mortgage Group, the podcast aims to shed light on the intricacies of tax strategies that transcend the basic understanding of tax brackets. Chris reveals why MTR is considered the primary Key Performance Indicator (KPI) for effective tax planning, emphasizing its critical role in guiding tax strategies and decisions.

Throughout the discussion, the distinction between marginal tax rates and tax brackets is elucidated, with Chris stressing the deceptive nature of tax brackets in comparison to the impactful MTR. He elaborates on how understanding one's MTR can drastically affect financial decisions and outcomes, particularly in tax planning contexts. Chris also touches on various elements like phase-outs and hidden taxes that influence one's marginal tax rate, offering listeners deep insights into tax planning. Highlighting the significance of implementing strategies that align with individual MTRs, Chris reinforces that comprehending one's MTR is pivotal to effective lifetime tax management.

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KEY TAKEAWAYS

✅ MTR vs. Tax Brackets: Marginal Tax Rate (MTR) is the most critical measure in tax planning, overshadowing the deceptive tax brackets.

✅ Tax Planning Strategy: Understanding and utilizing the MTR allows individuals to make informed choices, reducing taxes legally and ethically across their lifetime.

✅ Elements Affecting MTR: Chris highlights factors like phase-outs, deductions, and hidden taxes that can alter one's MTR significantly.

✅ Implementation over Ideas: Effective tax reduction hinges on implementing strategies that align with one's MTR to ensure maximum tax efficiency.

✅ Resources for Education: The podcast encourages utilizing Teaching Tax Flow content, such as YouTube and their community for further learning and clarity on tax concepts.

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EPISODE SPONSOR
Wealth Builders Mortgage Group
Your trusted mortgage partner for investors and entrepreneurs.
👉 www.wealthbuildersmortgagegroup.com

  • (00:02) - Exploring Marginal Tax Rates and Real Estate Investment Strategies
  • (01:56) - Understanding Marginal Tax Rate for Effective Tax Planning
  • (04:43) - Understanding Marginal Tax Rate Versus Tax Bracket
  • (06:49) - Understanding Marginal Tax Rate Versus Tax Bracket
  • (08:16) - Understanding Marginal Tax Rates and Their Hidden Implications
  • (11:50) - Understanding Marginal Tax Rate Versus Tax Bracket Misconceptions
  • (13:28) - Understanding Marginal Tax Rates and Hidden Taxes
  • (16:09) - Effective Tax Planning Through Strategic Implementation
  • (17:51) - Tax Strategies and Professional Advice for Financial Planning

Creators and Guests

Host
Chris Picciurro
Founder, Teaching Tax Flow
Host
John Tripolsky
VP of Marketing, Teaching Tax Flow

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

John Tripolsky:

Welcome back to the Teaching Tax Flow podcast, everybody. Today on this spectacular, spectacular topic that we are gonna dive back into, because we've mentioned it many times before, on episode 163, we are going to look at MTR, marginal tax rate. And before we get into it in-depth, we're going to take a brief moment and thank our episode sponsor.

Ad Read:

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John Tripolsky:

Hey, everybody. We are gonna jump directly into this one because we do not wanna muddy the waters, and we do not want to overemphasize too much and annoy you what MTR is. So we're gonna talk about what it is, what it is not. But I will give you three things that it absolutely does not stand for. So these are three things.

John Tripolsky:

It does not stand for making it taxables taxes reasonable. It sure as heck does not mean, oh, I'm missing the receipt, something you might tell your bookkeeper, drive them nuts. And it doesn't even mean you need more time requested. So we're gonna talk about what it is. The best person to do that, Chris Pacquiro, welcome back to the show, man.

John Tripolsky:

How's it going?

Chris Picciurro, CPA:

Thank you. It's going well. And marginal tax rate or MTR is one of the things that I really focus on, and it is so important not just for tax professionals, but for taxpayers to understand that this is the number one and really, in my mind, the only KPI, performance indicator when it comes to, tax planning and strategy. Maybe the only other KPI is gonna be someone's liquidity. And what marginal tax rate is is it's different than tax brackets.

Chris Picciurro, CPA:

Tax brackets are, structured and confusing and actually deceiving. Marginal tax rate is the number one thing that you have to know about your tax situation. It stands for marginal tax rate, and what that means is remember, in the teaching tax flow system, we have three laws. Tax agencies are your involuntary business partners, one of them. Tax, tax flow and cash flow is another one.

Chris Picciurro, CPA:

But marginal tax rate means, because we know that tax laws are in an incurrence and discourage certain social, economic, environmental behavior. What it means is this, for every dollar of taxable income you put on your tax return, how much of that are you sharing with your involuntary business partner? That's gonna be the IRS. That's gonna be any state that you pay tax to or John if you're so lucky to pay tax to a city or local government. So your MTR is it's a 100 of let's of extra taxable income.

Chris Picciurro, CPA:

How much do I get to keep? If if your marginal tax rate's 30%, I get to keep 30. You pay your business partners 30. Now the question is this. We talk about this all the time.

Chris Picciurro, CPA:

You have two choices. You pick your tax or your business partners to pick your tax. You pick your tax by doing the proper tax planning. Tax planning starts with understanding your marginal tax rate and in the teaching tax flow system, we use color coded diagnosis to describe someone's situation. But for our purposes, we can use high marginal tax rate, kind of medium marginal tax rate, and lower marginal tax rate.

Chris Picciurro, CPA:

And what we wanna do is we wanna recognize income as much as we can as those lower marginal tax rate years. And, again, tax brackets are very confusing. I'm gonna give you one very basic example, and then we're gonna start talking about what items are considered when it comes to marginal tax rate versus tax bracket. Because remember something, there are a lot of phase outs. We've talked about phase outs before.

Chris Picciurro, CPA:

Phase outs are wrinkles of the tax code that says, guess what? You get no tax on tips. But you know what? If you make too much money, you're on Santa's bad list, now you have to pay tax on your tips. Right?

Chris Picciurro, CPA:

Because there's a phase out based on income. So let me give you an example, John. Let's assume you have someone that's our parents' age. Let's say they have a modest sale or a modest pension of $30,000 and they're married, filing jointly, and they have Social Security income. In that case, only a portion a small part or probably let's say they have a pension of $20,000, and then they get 40,000 of Social Security.

Chris Picciurro, CPA:

None of their Social Security is gonna be taxable. However, if they have IRAs, and let's say they're over the required minimum distribution limit or RMDs, they have to take money out of those IRAs. So let's say they're forced to take $30,000 out of their IRA. They're looking at the tax rates saying, well, honey, this doesn't make any sense. We're in the 12% tax bracket.

Chris Picciurro, CPA:

Why am I paying a 25 to twenty, twenty five percent tax on my IRA distributions? That doesn't make any sense because they don't understand marginal tax rate. Because their IRA contributions put them over a threshold, now either 50% or 85% of their Social Security is taxed. Okay. That's a perfect example of marginal tax rate.

Chris Picciurro, CPA:

Now conversely, if you're doing tax planning for every dollar you can shield from reporting on your tax return, That's money that doesn't go to your business partners. But, again, tax planning isn't about just getting deductions this year. It's about legally and ethically reducing the tax you pay in your lifetime. So that's the main difference between a marginal tax rate and a tax bracket. A tax bracket can be very, very deceiving.

John Tripolsky:

And I love that you started with that to right out of the gate. You basically said it is it can be. Like I say this, can be very, very deceiving. So you might have a lot of people, and I think conditionally over time. Right?

John Tripolsky:

We we just understand, air quotes, that, oh, I'm in this tax bracket. Well, now we're basically saying, oh, here's my tax bracket. You know, who cares about your tax bracket? Get rid of the damn thing. Get it out of here.

John Tripolsky:

It doesn't matter. MTR is where it is. And to be totally honest, it took me a good probably eight months or a year even the first time I heard you say this to really kinda understand it and be like, oh, well, that makes a lot of sense. So would it be true in saying you have tax bracket over here, you have MTR over here, your marginal tax rate? This one, the only way you can really control it is by not showing up to work or just, you know, playing video games all day and not making income.

John Tripolsky:

This is where you have all the control. Majority of it as on the MTR side. Is that would that be a a fair analysis?

Chris Picciurro, CPA:

Yeah. I mean, look at look at look at the example of I mean, the the Social Security example is a good example, but look at the example of a student loan interest deduction. Right? So to deduct your student loan interest, you have to be on which the the maximum amount of student loan interest deduction is $2,500, but to be able to deduct that, you have to be under certain income thresholds. So that's where it gets you know, that that's where things get a little little crazy.

Chris Picciurro, CPA:

And yeah. So let's talk about the things. So to understand the difference between marginal tax rate and and tax bracket, we have to look at all of the things that are different. Right? Where can where can a tax bracket be deceiving?

Chris Picciurro, CPA:

Now tax brackets, they're not useless, but they're just deceiving. Does that make so for instance, John, remember, in a previous episode, we talked about medical expenses, and only and medical expenses can you know that's why there's a value to a health savings account, but out of pocket medical expenses are only deductible if you itemize and they exceed seven and a half percent of your income. Well, if your adjusted gross income goes up, then the you're paying tax on that additional income, but what else is happening, John? You're losing deduction for medical expense. And now it's a double whammy.

John Tripolsky:

Right. Right.

Chris Picciurro, CPA:

Right. A lot to there's a lot of stuff that goes in there. So let's let's talk about what are the things we need to be aware of that affect your marginal tax rate that tax brackets can be deceiving on. Medical expenses. I already mentioned one.

Chris Picciurro, CPA:

I mentioned student loan interest deduction because it phase out. The tuition and fees deduction gets phased out. IRA deduction can get phased out. The qualified business income deduction can get phased out based on your income. So that's pretty you know, passive activity losses.

Chris Picciurro, CPA:

So we talk about rental property and rental activities being passive or nonpassive. And if they're passive, if your income is over a $100,000, then you start to lose the deduction you you you start to lose the ability to deduct those losses in the current year, they carry forward. We talked a lot about we have a ton of content. So if you're listening to this or watching this, I'm gonna be a little feisty right now. Make sure you go to our YouTube channel, educate yourself, and look at the playlist that is all about o b three, one big beautiful bill act.

Chris Picciurro, CPA:

We talk a lot about all those new deductions. There's, we had a very popular podcast on schedule one a. That's the new IRS tax form for 2025. There's four new deductions on schedule one a that are gonna greatly affect your marginal tax rate, but they're all phased out at different income levels. So no tax on tips.

Chris Picciurro, CPA:

So let me make that example again, John. Let's say you're getting the full tip deduction right now. However, your income you know, you get an inheritance from inherited IRA distribution, and now that shoots your income up, and you're looking at your tax bracket and saying, I'm in the 24% tax bracket. Why did why am I why is my tax on this additional income 30%? Because marginal tax rate means you're paying that your income you're you're increasing the amount of income that's taxed at that higher marginal tax or higher tax rate, and you're also losing deductions too.

Chris Picciurro, CPA:

So that's that's that's where it gets tricky. So you're no tax on tips. You're no tax on overtime. Your car new car loan interest deduction and the enhanced senior deduction, all those things are things that could make your marginal tax rate much, much different than your tax bracket. So your number one takeaway needs to be my marginal tax rate is not my tax bracket.

John Tripolsky:

That's And if somebody's listening to this for the first time, right, they're probably very excited. They're probably doing what we'll call, like, the no tax dance or something. You know? I don't I don't know. Come up with something.

John Tripolsky:

I'm not gonna start the wave because I'll be the only one doing it. Go back and listen to that content of those couple things that Chris just mentioned only, and I say this very highlighted, we should say, you heard no tax on tips. Go listen to it because it may not apply to you even though you get tips. So a lot of those things, check them out. And, Chris, maybe maybe this is kind of interesting.

John Tripolsky:

Right? We talked about kinda throwing out here. I just wanna throw another one. They were gonna throw another note card. You know, throwing out the tax bracket thing.

John Tripolsky:

I just did a quick search, me being the marketer. Over twenty twenty to 25,000 times a month estimated, somebody is searching online for tax bracket or what is my tax bracket? And almost 12,000 people are clicking through to that. So there's over 12,000 people a month that feel like they're educated because they know what their air quotes tax bracket is. Right?

John Tripolsky:

So I wouldn't say it's dangerous, but it's it's misinformation in a sense. Right? So in in your profession, you know, the the private tax practice, you know, you guys being tax pros, you you really look at that MTR kind of as, like, the guiding light. Right? Like, if you don't know that, you don't do anything.

Chris Picciurro, CPA:

It's the only light. It's not even There you go. Yeah. It's the it's the most important thing when you're doing tax planning. Then liquidity.

Chris Picciurro, CPA:

Right? So if you don't if you wanna control your marginal tax rate, you might wanna consider one of, you know, some type of tax planning implementations. They could be behavioral. They could be tax advantage investments. They could be tax mitigation strategies.

Chris Picciurro, CPA:

It just depends on your situation. Let's go through the other items. I had a I have a real story where I had a client that was in the 80% marginal tax rate because they were getting the premium tax credit, meaning meaning they were getting that subsidy from the government, and their income threshold went over it, over that threshold, had to pay back almost $20,000 of those premiums. It because their income was $30,000 too high.

John Tripolsky:

Dude, that's painful.

Chris Picciurro, CPA:

So that's what I'm saying, marginal tax rate. So here are the difference here are the items that you have to be aware of that are different or re the reason that your marginal tax rate is gonna be different than your tax bracket. So your child tax credit, that's a phase out. Your additional child tax credit, your child independent care credit, your earned income tax credit. Now now I'm gonna talk about the your lifetime learning credit and AOTC, American Opportunity Tax Credit.

Chris Picciurro, CPA:

Those are your those are going to be your educational credits. Retirement savers contribution credit. We talked about that, I know, on the YouTube channel. Your premium tax credit that has to do with when you're, when you're getting a subsidy based on in your income, the adoption tax credit, and then there's a bunch of other hidden taxes. Remember we did a we did some content on hidden taxes also.

Chris Picciurro, CPA:

Right? Because there's an init, net investment income tax. There's additional Medicare tax, and then there's a really hidden tax. Yeah. We talked about those hidden taxes with Social Security, IRMAA, Medicare income related monthly adjustment amount.

Chris Picciurro, CPA:

So if you are on Medicare and your income exceeds a certain amount, there's a two year look back where the the government's going to say, John, your income was too high, so we're going to increase the amount you're paying for the same insurance that you have. That's a hidden tax. That's part of your marginal tax rate, So definitely talk to your tax professional about what the heck I know this is probably the feistiest I've ever been on one of these podcasts.

John Tripolsky:

No. LLC got hot. You were getting

Chris Picciurro, CPA:

real real spicy from

John Tripolsky:

LLCs. You survived.

Chris Picciurro, CPA:

It's your marginal tax rate, and that drives everything. And for us and the teaching and make sure I'm so tired of these you know, we have to remember, ideas are cheap and implementation's valuable. So what I mean by that is make sure your tax planning implementation matches your marginal tax rate need. If you're a low marginal tax rate, you shouldn't be putting money in your pretax IRA. Right.

Chris Picciurro, CPA:

If you're you should probably do a Roth. If you're a high marginal tax rate, you should be doing high marginal tax rate implementations. So make sure that you're pairing your implementations with your situation.

John Tripolsky:

And that is a great place to end this one at. Right? So doing implementations on your own, again, coming at this from a different vantage point than Chris', if anybody's listened to this. Couple things I got for you, then we'll wrap. Find somebody that you work with, that you trust, that understands your situation, but then also understands implementations.

John Tripolsky:

Chris, I think that line is one of the best you've ever said. We've been here for years. If I ever got a tattoo with a quote from you, sir, would say that. Right? That that ideas are cheap.

John Tripolsky:

Implementations are valuable because it stretches across everything everybody does every day.

Chris Picciurro, CPA:

Right.

John Tripolsky:

But like you said, only only following through with those implementations that make sense, that pair with your MTR. Mhmm. That's the only way to do it. Otherwise, you just you're just throwing things out in a sense. So find that person.

John Tripolsky:

Follow through those implementations. Don't just shoot from the hip and say, oh, this is gonna work. I'm gonna do it. Go that route. Lean on people.

John Tripolsky:

Lean on people for it. The TTF community. We have our private Facebook group, defeatingtaxes.com. There's more people that are in that. It's I I can't I don't know exactly what the ratio is, but there is a lot of tax professionals in that.

John Tripolsky:

So don't think you're just gonna ask a question and you're gonna get advice from other people like yourself. You're gonna get some professional information. Do that, and then subscribe to the YouTube channel. Do a search. I don't know if you guys knew that.

John Tripolsky:

You can actually search within our channel on keyword, search for some stuff, and I promise it's in there. We've covered pretty much everything to at this point, I don't think we're really introducing anything new. We're just clarifying, digging in deeper, and then introducing updates to things. Would it that'd probably be fair to say, right, Chris, based on our content schedule?

Chris Picciurro, CPA:

Sure. And other also remember with marginal tax rate, factoring your state and local tax. And your state and local tax might be based on different things. You know, a lot of states exclude retirement income up to a certain level. Most of them exclude, Social Security income up to a certain level.

Chris Picciurro, CPA:

So, again, your marginal tax rate has to be determined, and and I'm and that's your overall tax. Right? Not just your federal tax.

John Tripolsky:

So yes. Absolutely. And, like we said, Chris deals with this stuff every single day and has been for a while, so you're hearing from somebody that knows exactly how impactful that is. And just again, we're gonna throw the tax bracket out just because I like throwing sticky notes today for some apparent reason. I like trying to clog my vacuum when it's running around here later.

John Tripolsky:

But subscribe to the YouTube channel, as we mentioned. Get on defeating taxes. Ask us questions. Don't think you have nowhere to go. We are here.

John Tripolsky:

We'll get you the answers. We'll get you the place you need to go. Until then, we'll see you guys next week here on the teaching tax flow podcast. Same day of the week, different date, completely different topic. Every week, everybody.

Disclaimer:

For all tax and legal advice, please consult your CPA or attorney. Investment advisory services are offered through Cabin Advisors, a registered investment advisor. Securities are offered through Cabin Securities, a registered broker dealer. The content of this podcast does not constitute an offer of securities. Offerings can only be made through an offering memorandum, and you should carefully examine the risk factors and other information contained in the memorandum.