November 25, 2025 • 19 mins
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.
⸻
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.
⸻
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
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
John Tripolsky (00:02):
Welcome back to the Teaching Tax Flow podcast,
everybody. Today on thisspectacular, spectacular topic
that we are gonna dive backinto, because we've mentioned it
many times before, on episode163, we are going to look at
MTR, marginal tax rate. Andbefore we get into it in-depth,
we're going to take a briefmoment and thank our episode
(00:22):
sponsor.
Ad Read (00:23):
This episode is sponsored by Wealth Builders
Mortgage Group, powered byMovement Mortgage, one of the
top mortgage teams in the nationand a powerhouse in the real
estate investing world. Withover 1,100,000,000 in closed
mortgage volume and more than3,000 investor deals under their
belt, they don't just talk thetalk, they walk it. Their team
(00:45):
specializes in helping shortterm and long term rental
investors scale smart withcustomized lending strategies.
They offer all STR loanproducts, including second home,
investment, non QM, bankstatement, asset based, and
HELOCs. They also offer allprimary home loan products too.
Whether you're just starting outor expanding an existing
(01:05):
portfolio, their unique Path of10 strategy is designed to help
you move from a nine to five jobto financial independence. If
you're looking for a lendingpartner who truly understands
the investor mindset, visitwealthbuildersmortgagegroup.com
and start building your roadmaptoday.
John Tripolsky (01:23):
Hey, everybody. We are gonna jump directly into
this one because we do not wannamuddy the waters, and we do not
want to overemphasize too muchand annoy you what MTR is. So
we're gonna talk about what itis, what it is not. But I will
give you three things that itabsolutely does not stand for.
So these are three things.
It does not stand for making ittaxables taxes reasonable. It
(01:46):
sure as heck does not mean, oh,I'm missing the receipt,
something you might tell yourbookkeeper, drive them nuts. And
it doesn't even mean you needmore time requested. So we're
gonna talk about what it is. Thebest person to do that, Chris
Pacquiro, welcome back to theshow, man.
How's it going?
Chris Picciurro, CPA (02:01):
Thank you. It's going well. And marginal
tax rate or MTR is one of thethings that I really focus on,
and it is so important not justfor tax professionals, but for
taxpayers to understand thatthis is the number one and
really, in my mind, the onlyKPI, performance indicator when
(02:27):
it comes to, tax planning andstrategy. Maybe the only other
KPI is gonna be someone'sliquidity. And what marginal tax
rate is is it's different thantax brackets.
Tax brackets are, structured andconfusing and actually
deceiving. Marginal tax rate isthe number one thing that you
(02:49):
have to know about your taxsituation. It stands for
marginal tax rate, and what thatmeans is remember, in the
teaching tax flow system, wehave three laws. Tax agencies
are your involuntary businesspartners, one of them. Tax, tax
flow and cash flow is anotherone.
But marginal tax rate means,because we know that tax laws
(03:11):
are in an incurrence anddiscourage certain social,
economic, environmentalbehavior. What it means is this,
for every dollar of taxableincome you put on your tax
return, how much of that are yousharing with your involuntary
business partner? That's gonnabe the IRS. That's gonna be any
state that you pay tax to orJohn if you're so lucky to pay
(03:35):
tax to a city or localgovernment. So your MTR is it's
a 100 of let's of extra taxableincome.
How much do I get to keep? If ifyour marginal tax rate's 30%, I
get to keep 30. You pay yourbusiness partners 30. Now the
question is this. We talk aboutthis all the time.
(03:55):
You have two choices. You pickyour tax or your business
partners to pick your tax. Youpick your tax by doing the
proper tax planning. Taxplanning starts with
understanding your marginal taxrate and in the teaching tax
flow system, we use color codeddiagnosis to describe someone's
situation. But for our purposes,we can use high marginal tax
(04:17):
rate, kind of medium marginaltax rate, and lower marginal tax
rate.
And what we wanna do is we wannarecognize income as much as we
can as those lower marginal taxrate years. And, again, tax
brackets are very confusing. I'mgonna give you one very basic
example, and then we're gonnastart talking about what items
(04:39):
are considered when it comes tomarginal tax rate versus tax
bracket. Because remembersomething, there are a lot of
phase outs. We've talked aboutphase outs before.
Phase outs are wrinkles of thetax code that says, guess what?
You get no tax on tips. But youknow what? If you make too much
money, you're on Santa's badlist, now you have to pay tax on
(05:00):
your tips. Right?
Because there's a phase outbased on income. So let me give
you an example, John. Let'sassume you have someone that's
our parents' age. Let's say theyhave a modest sale or a modest
pension of $30,000 and they'remarried, filing jointly, and
they have Social Securityincome. In that case, only a
(05:21):
portion a small part or probablylet's say they have a pension of
$20,000, and then they get40,000 of Social Security.
None of their Social Security isgonna be taxable. However, if
they have IRAs, and let's saythey're over the required
minimum distribution limit orRMDs, they have to take money
(05:41):
out of those IRAs. So let's saythey're forced to take $30,000
out of their IRA. They'relooking at the tax rates saying,
well, honey, this doesn't makeany sense. We're in the 12% tax
bracket.
Why am I paying a 25 to twenty,twenty five percent tax on my
IRA distributions? That doesn'tmake any sense because they
(06:02):
don't understand marginal taxrate. Because their IRA
contributions put them over athreshold, now either 50% or 85%
of their Social Security istaxed. Okay. That's a perfect
example of marginal tax rate.
Now conversely, if you're doingtax planning for every dollar
(06:22):
you can shield from reporting onyour tax return, That's money
that doesn't go to your businesspartners. But, again, tax
planning isn't about justgetting deductions this year.
It's about legally and ethicallyreducing the tax you pay in your
lifetime. So that's the maindifference between a marginal
(06:43):
tax rate and a tax bracket. Atax bracket can be very, very
deceiving.
John Tripolsky (06:49):
And I love that you started with that to right
out of the gate. You basicallysaid it is it can be. Like I say
this, can be very, verydeceiving. So you might have a
lot of people, and I thinkconditionally over time. Right?
We we just understand, airquotes, that, oh, I'm in this
tax bracket. Well, now we'rebasically saying, oh, here's my
tax bracket. You know, who caresabout your tax bracket? Get rid
of the damn thing. Get it out ofhere.
It doesn't matter. MTR is whereit is. And to be totally honest,
(07:13):
it took me a good probably eightmonths or a year even the first
time I heard you say this toreally kinda understand it and
be like, oh, well, that makes alot of sense. So would it be
true in saying you have taxbracket over here, you have MTR
over here, your marginal taxrate? This one, the only way you
can really control it is by notshowing up to work or just, you
know, playing video games allday and not making income.
(07:35):
This is where you have all thecontrol. Majority of it as on
the MTR side. Is that would thatbe a a fair analysis?
Chris Picciurro, CPA (07:41):
Yeah. I mean, look at look at look at
the example of I mean, the theSocial Security example is a
good example, but look at theexample of a student loan
interest deduction. Right? So todeduct your student loan
interest, you have to be onwhich the the maximum amount of
student loan interest deductionis $2,500, but to be able to
(08:02):
deduct that, you have to beunder certain income thresholds.
So that's where it gets youknow, that that's where things
get a little little crazy.
And yeah. So let's talk aboutthe things. So to understand the
difference between marginal taxrate and and tax bracket, we
(08:23):
have to look at all of thethings that are different.
Right? Where can where can a taxbracket be deceiving?
Now tax brackets, they're notuseless, but they're just
deceiving. Does that make so forinstance, John, remember, in a
(08:44):
previous episode, we talkedabout medical expenses, and only
and medical expenses can youknow that's why there's a value
to a health savings account, butout of pocket medical expenses
are only deductible if youitemize and they exceed seven
and a half percent of yourincome. Well, if your adjusted
gross income goes up, then theyou're paying tax on that
additional income, but what elseis happening, John? You're
(09:06):
losing deduction for medicalexpense. And now it's a double
whammy.
John Tripolsky (09:13):
Right. Right.
Chris Picciurro, CPA (09:14):
Right. A lot to there's a lot of stuff
that goes in there. So let'slet's talk about what are the
things we need to be aware ofthat affect your marginal tax
rate that tax brackets can bedeceiving on. Medical expenses.
I already mentioned one.
I mentioned student loaninterest deduction because it
phase out. The tuition and feesdeduction gets phased out. IRA
(09:36):
deduction can get phased out.The qualified business income
deduction can get phased outbased on your income. So that's
pretty you know, passiveactivity losses.
So we talk about rental propertyand rental activities being
passive or nonpassive. And ifthey're passive, if your income
is over a $100,000, then youstart to lose the deduction you
(10:00):
you you start to lose theability to deduct those losses
in the current year, they carryforward. We talked a lot about
we have a ton of content. So ifyou're listening to this or
watching this, I'm gonna be alittle feisty right now. Make
sure you go to our YouTubechannel, educate yourself, and
look at the playlist that is allabout o b three, one big
(10:22):
beautiful bill act.
We talk a lot about all thosenew deductions. There's, we had
a very popular podcast onschedule one a. That's the new
IRS tax form for 2025. There'sfour new deductions on schedule
one a that are gonna greatlyaffect your marginal tax rate,
but they're all phased out atdifferent income levels. So no
(10:44):
tax on tips.
So let me make that exampleagain, John. Let's say you're
getting the full tip deductionright now. However, your income
you know, you get an inheritancefrom inherited IRA distribution,
and now that shoots your incomeup, and you're looking at your
tax bracket and saying, I'm inthe 24% tax bracket. Why did why
(11:05):
am I why is my tax on thisadditional income 30%? Because
marginal tax rate means you'repaying that your income you're
you're increasing the amount ofincome that's taxed at that
higher marginal tax or highertax rate, and you're also losing
deductions too.
So that's that's that's where itgets tricky. So you're no tax on
(11:28):
tips. You're no tax on overtime.Your car new car loan interest
deduction and the enhancedsenior deduction, all those
things are things that couldmake your marginal tax rate
much, much different than yourtax bracket. So your number one
takeaway needs to be my marginaltax rate is not my tax bracket.
John Tripolsky (11:50):
That's And if somebody's listening to this for
the first time, right, they'reprobably very excited. They're
probably doing what we'll call,like, the no tax dance or
something. You know? I don't Idon't know. Come up with
something.
I'm not gonna start the wavebecause I'll be the only one
doing it. Go back and listen tothat content of those couple
things that Chris just mentionedonly, and I say this very
highlighted, we should say, youheard no tax on tips. Go listen
(12:12):
to it because it may not applyto you even though you get tips.
So a lot of those things, checkthem out. And, Chris, maybe
maybe this is kind ofinteresting.
Right? We talked about kindathrowing out here. I just wanna
throw another one. They weregonna throw another note card.
You know, throwing out the taxbracket thing.
I just did a quick search, mebeing the marketer. Over twenty
twenty to 25,000 times a monthestimated, somebody is searching
(12:35):
online for tax bracket or whatis my tax bracket? And almost
12,000 people are clickingthrough to that. So there's over
12,000 people a month that feellike they're educated because
they know what their air quotestax bracket is. Right?
So I wouldn't say it'sdangerous, but it's it's
misinformation in a sense.Right? So in in your profession,
(12:56):
you know, the the private taxpractice, you know, you guys
being tax pros, you you reallylook 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 (13:05):
It's the only light. It's not even There
you go. Yeah. It's the it's themost important thing when you're
doing tax planning. Thenliquidity.
Right? So if you don't if youwanna control your marginal tax
rate, you might wanna considerone of, you know, some type of
tax planning implementations.They could be behavioral. They
could be tax advantageinvestments. They could be tax
mitigation strategies.
It just depends on yoursituation. Let's go through the
(13:29):
other items. I had a I have areal story where I had a client
that was in the 80% marginal taxrate because they were getting
the premium tax credit, meaningmeaning they were getting that
subsidy from the government, andtheir income threshold went over
it, over that threshold, had topay back almost $20,000 of those
premiums. It because theirincome was $30,000 too high.
John Tripolsky (13:52):
Dude, that's painful.
Chris Picciurro, CPA (13:54):
So that's what I'm saying, marginal tax
rate. So here are the differencehere are the items that you have
to be aware of that aredifferent or re the reason that
your marginal tax rate is gonnabe different than your tax
bracket. So your child taxcredit, that's a phase out. Your
additional child tax credit,your child independent care
credit, your earned income taxcredit. Now now I'm gonna talk
(14:17):
about the your lifetime learningcredit and AOTC, American
Opportunity Tax Credit.
Those are your those are goingto be your educational credits.
Retirement savers contributioncredit. We talked about that, I
know, on the YouTube channel.Your premium tax credit that has
to do with when you're, whenyou're getting a subsidy based
on in your income, the adoptiontax credit, and then there's a
(14:40):
bunch of other hidden taxes.Remember we did a we did some
content on hidden taxes also.
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 thosehidden taxes with Social
Security, IRMAA, Medicare incomerelated monthly adjustment
amount.
(15:00):
So if you are on Medicare andyour income exceeds a certain
amount, there's a two year lookback where the the government's
going to say, John, your incomewas too high, so we're going to
increase the amount you'repaying for the same insurance
that you have. That's a hiddentax. That's part of your
marginal tax rate, So definitelytalk to your tax professional
(15:25):
about what the heck I know thisis probably the feistiest I've
ever been on one of thesepodcasts.
John Tripolsky (15:30):
No. LLC got hot. You were getting
Chris Picciurro, CPA (15:32):
real real spicy from
John Tripolsky (15:34):
LLCs. You survived.
Chris Picciurro, CPA (15:36):
It's your marginal tax rate, and that
drives everything. And for usand the teaching and make sure
I'm so tired of these you know,we have to remember, ideas are
cheap and implementation'svaluable. So what I mean by that
is make sure your tax planningimplementation matches your
marginal tax rate need. Ifyou're a low marginal tax rate,
(15:56):
you shouldn't be putting moneyin your pretax IRA. Right.
If you're you should probably doa Roth. If you're a high
marginal tax rate, you should bedoing high marginal tax rate
implementations. So make surethat you're pairing your
implementations with yoursituation.
John Tripolsky (16:16):
And that is a great place to end this one at.
Right? So doing implementationson your own, again, coming at
this from a different vantagepoint than Chris', if anybody's
listened to this. Couple thingsI got for you, then we'll wrap.
Find somebody that you workwith, that you trust, that
understands your situation, butthen also understands
implementations.
Chris, I think that line is oneof the best you've ever said.
(16:37):
We've been here for years. If Iever got a tattoo with a quote
from you, sir, would say that.Right? That that ideas are
cheap.
Implementations are valuablebecause it stretches across
everything everybody does everyday.
Chris Picciurro, CPA (16:47):
Right.
John Tripolsky (16:47):
But like you said, only only following
through with thoseimplementations that make sense,
that pair with your MTR. Mhmm.That's the only way to do it.
Otherwise, you just you're justthrowing things out in a sense.
So find that person.
Follow through thoseimplementations. Don't just
shoot from the hip and say, oh,this is gonna work. I'm gonna do
(17:08):
it. Go that route. Lean onpeople.
Lean on people for it. The TTFcommunity. We have our private
Facebook group,defeatingtaxes.com. There's more
people that are in that. It's II can't I don't know exactly
what the ratio is, but there isa lot of tax professionals in
that.
So don't think you're just gonnaask a question and you're gonna
get advice from other peoplelike yourself. You're gonna get
some professional information.Do that, and then subscribe to
(17:31):
the YouTube channel. Do asearch. I don't know if you guys
knew that.
You can actually search withinour channel on keyword, search
for some stuff, and I promiseit's in there. We've covered
pretty much everything to atthis point, I don't think we're
really introducing anything new.We're just clarifying, digging
in deeper, and then introducingupdates to things. Would it
that'd probably be fair to say,right, Chris, based on our
content schedule?
Chris Picciurro, CPA (17:50):
Sure. And other also remember with
marginal tax rate, factoringyour state and local tax. And
your state and local tax mightbe based on different things.
You know, a lot of statesexclude retirement income up to
a certain level. Most of themexclude, Social Security income
up to a certain level.
So, again, your marginal taxrate has to be determined, and
(18:13):
and I'm and that's your overalltax. Right? Not just your
federal tax.
John Tripolsky (18:18):
So yes. Absolutely. And, like we said,
Chris deals with this stuffevery single day and has been
for a while, so you're hearingfrom somebody that knows exactly
how impactful that is. And justagain, we're gonna throw the tax
bracket out just because I likethrowing sticky notes today for
some apparent reason. I liketrying to clog my vacuum when
it's running around here later.
But subscribe to the YouTubechannel, as we mentioned. Get on
defeating taxes. Ask usquestions. Don't think you have
(18:41):
nowhere to go. We are here.
We'll get you the answers. We'llget you the place you need to
go. Until then, we'll see youguys next week here on the
teaching tax flow podcast. Sameday of the week, different date,
completely different topic.Every week, everybody.
Disclaimer (19:06):
For all tax and legal advice, please consult
your CPA or attorney. Investmentadvisory services are offered
through Cabin Advisors, aregistered investment advisor.
Securities are offered throughCabin Securities, a registered
broker dealer. The content ofthis 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 otherinformation contained in the
(19:27):
memorandum.
Welcome back to the Teaching Tax Flow podcast,
everybody. Today on thisspectacular, spectacular topic
that we are gonna dive backinto, because we've mentioned it
many times before, on episode163, we are going to look at
MTR, marginal tax rate. Andbefore we get into it in-depth,
we're going to take a briefmoment and thank our episode
(00:22):
sponsor.
Ad Read (00:23):
This episode is sponsored by Wealth Builders
Mortgage Group, powered byMovement Mortgage, one of the
top mortgage teams in the nationand a powerhouse in the real
estate investing world. Withover 1,100,000,000 in closed
mortgage volume and more than3,000 investor deals under their
belt, they don't just talk thetalk, they walk it. Their team
(00:45):
specializes in helping shortterm and long term rental
investors scale smart withcustomized lending strategies.
They offer all STR loanproducts, including second home,
investment, non QM, bankstatement, asset based, and
HELOCs. They also offer allprimary home loan products too.
Whether you're just starting outor expanding an existing
(01:05):
portfolio, their unique Path of10 strategy is designed to help
you move from a nine to five jobto financial independence. If
you're looking for a lendingpartner who truly understands
the investor mindset, visitwealthbuildersmortgagegroup.com
and start building your roadmaptoday.
John Tripolsky (01:23):
Hey, everybody. We are gonna jump directly into
this one because we do not wannamuddy the waters, and we do not
want to overemphasize too muchand annoy you what MTR is. So
we're gonna talk about what itis, what it is not. But I will
give you three things that itabsolutely does not stand for.
So these are three things.
It does not stand for making ittaxables taxes reasonable. It
(01:46):
sure as heck does not mean, oh,I'm missing the receipt,
something you might tell yourbookkeeper, drive them nuts. And
it doesn't even mean you needmore time requested. So we're
gonna talk about what it is. Thebest person to do that, Chris
Pacquiro, welcome back to theshow, man.
How's it going?
Chris Picciurro, CPA (02:01):
Thank you. It's going well. And marginal
tax rate or MTR is one of thethings that I really focus on,
and it is so important not justfor tax professionals, but for
taxpayers to understand thatthis is the number one and
really, in my mind, the onlyKPI, performance indicator when
(02:27):
it comes to, tax planning andstrategy. Maybe the only other
KPI is gonna be someone'sliquidity. And what marginal tax
rate is is it's different thantax brackets.
Tax brackets are, structured andconfusing and actually
deceiving. Marginal tax rate isthe number one thing that you
(02:49):
have to know about your taxsituation. It stands for
marginal tax rate, and what thatmeans is remember, in the
teaching tax flow system, wehave three laws. Tax agencies
are your involuntary businesspartners, one of them. Tax, tax
flow and cash flow is anotherone.
But marginal tax rate means,because we know that tax laws
(03:11):
are in an incurrence anddiscourage certain social,
economic, environmentalbehavior. What it means is this,
for every dollar of taxableincome you put on your tax
return, how much of that are yousharing with your involuntary
business partner? That's gonnabe the IRS. That's gonna be any
state that you pay tax to orJohn if you're so lucky to pay
(03:35):
tax to a city or localgovernment. So your MTR is it's
a 100 of let's of extra taxableincome.
How much do I get to keep? If ifyour marginal tax rate's 30%, I
get to keep 30. You pay yourbusiness partners 30. Now the
question is this. We talk aboutthis all the time.
(03:55):
You have two choices. You pickyour tax or your business
partners to pick your tax. Youpick your tax by doing the
proper tax planning. Taxplanning starts with
understanding your marginal taxrate and in the teaching tax
flow system, we use color codeddiagnosis to describe someone's
situation. But for our purposes,we can use high marginal tax
(04:17):
rate, kind of medium marginaltax rate, and lower marginal tax
rate.
And what we wanna do is we wannarecognize income as much as we
can as those lower marginal taxrate years. And, again, tax
brackets are very confusing. I'mgonna give you one very basic
example, and then we're gonnastart talking about what items
(04:39):
are considered when it comes tomarginal tax rate versus tax
bracket. Because remembersomething, there are a lot of
phase outs. We've talked aboutphase outs before.
Phase outs are wrinkles of thetax code that says, guess what?
You get no tax on tips. But youknow what? If you make too much
money, you're on Santa's badlist, now you have to pay tax on
(05:00):
your tips. Right?
Because there's a phase outbased on income. So let me give
you an example, John. Let'sassume you have someone that's
our parents' age. Let's say theyhave a modest sale or a modest
pension of $30,000 and they'remarried, filing jointly, and
they have Social Securityincome. In that case, only a
(05:21):
portion a small part or probablylet's say they have a pension of
$20,000, and then they get40,000 of Social Security.
None of their Social Security isgonna be taxable. However, if
they have IRAs, and let's saythey're over the required
minimum distribution limit orRMDs, they have to take money
(05:41):
out of those IRAs. So let's saythey're forced to take $30,000
out of their IRA. They'relooking at the tax rates saying,
well, honey, this doesn't makeany sense. We're in the 12% tax
bracket.
Why am I paying a 25 to twenty,twenty five percent tax on my
IRA distributions? That doesn'tmake any sense because they
(06:02):
don't understand marginal taxrate. Because their IRA
contributions put them over athreshold, now either 50% or 85%
of their Social Security istaxed. Okay. That's a perfect
example of marginal tax rate.
Now conversely, if you're doingtax planning for every dollar
(06:22):
you can shield from reporting onyour tax return, That's money
that doesn't go to your businesspartners. But, again, tax
planning isn't about justgetting deductions this year.
It's about legally and ethicallyreducing the tax you pay in your
lifetime. So that's the maindifference between a marginal
(06:43):
tax rate and a tax bracket. Atax bracket can be very, very
deceiving.
John Tripolsky (06:49):
And I love that you started with that to right
out of the gate. You basicallysaid it is it can be. Like I say
this, can be very, verydeceiving. So you might have a
lot of people, and I thinkconditionally over time. Right?
We we just understand, airquotes, that, oh, I'm in this
tax bracket. Well, now we'rebasically saying, oh, here's my
tax bracket. You know, who caresabout your tax bracket? Get rid
of the damn thing. Get it out ofhere.
It doesn't matter. MTR is whereit is. And to be totally honest,
(07:13):
it took me a good probably eightmonths or a year even the first
time I heard you say this toreally kinda understand it and
be like, oh, well, that makes alot of sense. So would it be
true in saying you have taxbracket over here, you have MTR
over here, your marginal taxrate? This one, the only way you
can really control it is by notshowing up to work or just, you
know, playing video games allday and not making income.
(07:35):
This is where you have all thecontrol. Majority of it as on
the MTR side. Is that would thatbe a a fair analysis?
Chris Picciurro, CPA (07:41):
Yeah. I mean, look at look at look at
the example of I mean, the theSocial Security example is a
good example, but look at theexample of a student loan
interest deduction. Right? So todeduct your student loan
interest, you have to be onwhich the the maximum amount of
student loan interest deductionis $2,500, but to be able to
(08:02):
deduct that, you have to beunder certain income thresholds.
So that's where it gets youknow, that that's where things
get a little little crazy.
And yeah. So let's talk aboutthe things. So to understand the
difference between marginal taxrate and and tax bracket, we
(08:23):
have to look at all of thethings that are different.
Right? Where can where can a taxbracket be deceiving?
Now tax brackets, they're notuseless, but they're just
deceiving. Does that make so forinstance, John, remember, in a
(08:44):
previous episode, we talkedabout medical expenses, and only
and medical expenses can youknow that's why there's a value
to a health savings account, butout of pocket medical expenses
are only deductible if youitemize and they exceed seven
and a half percent of yourincome. Well, if your adjusted
gross income goes up, then theyou're paying tax on that
additional income, but what elseis happening, John? You're
(09:06):
losing deduction for medicalexpense. And now it's a double
whammy.
John Tripolsky (09:13):
Right. Right.
Chris Picciurro, CPA (09:14):
Right. A lot to there's a lot of stuff
that goes in there. So let'slet's talk about what are the
things we need to be aware ofthat affect your marginal tax
rate that tax brackets can bedeceiving on. Medical expenses.
I already mentioned one.
I mentioned student loaninterest deduction because it
phase out. The tuition and feesdeduction gets phased out. IRA
(09:36):
deduction can get phased out.The qualified business income
deduction can get phased outbased on your income. So that's
pretty you know, passiveactivity losses.
So we talk about rental propertyand rental activities being
passive or nonpassive. And ifthey're passive, if your income
is over a $100,000, then youstart to lose the deduction you
(10:00):
you you start to lose theability to deduct those losses
in the current year, they carryforward. We talked a lot about
we have a ton of content. So ifyou're listening to this or
watching this, I'm gonna be alittle feisty right now. Make
sure you go to our YouTubechannel, educate yourself, and
look at the playlist that is allabout o b three, one big
(10:22):
beautiful bill act.
We talk a lot about all thosenew deductions. There's, we had
a very popular podcast onschedule one a. That's the new
IRS tax form for 2025. There'sfour new deductions on schedule
one a that are gonna greatlyaffect your marginal tax rate,
but they're all phased out atdifferent income levels. So no
(10:44):
tax on tips.
So let me make that exampleagain, John. Let's say you're
getting the full tip deductionright now. However, your income
you know, you get an inheritancefrom inherited IRA distribution,
and now that shoots your incomeup, and you're looking at your
tax bracket and saying, I'm inthe 24% tax bracket. Why did why
(11:05):
am I why is my tax on thisadditional income 30%? Because
marginal tax rate means you'repaying that your income you're
you're increasing the amount ofincome that's taxed at that
higher marginal tax or highertax rate, and you're also losing
deductions too.
So that's that's that's where itgets tricky. So you're no tax on
(11:28):
tips. You're no tax on overtime.Your car new car loan interest
deduction and the enhancedsenior deduction, all those
things are things that couldmake your marginal tax rate
much, much different than yourtax bracket. So your number one
takeaway needs to be my marginaltax rate is not my tax bracket.
John Tripolsky (11:50):
That's And if somebody's listening to this for
the first time, right, they'reprobably very excited. They're
probably doing what we'll call,like, the no tax dance or
something. You know? I don't Idon't know. Come up with
something.
I'm not gonna start the wavebecause I'll be the only one
doing it. Go back and listen tothat content of those couple
things that Chris just mentionedonly, and I say this very
highlighted, we should say, youheard no tax on tips. Go listen
(12:12):
to it because it may not applyto you even though you get tips.
So a lot of those things, checkthem out. And, Chris, maybe
maybe this is kind ofinteresting.
Right? We talked about kindathrowing out here. I just wanna
throw another one. They weregonna throw another note card.
You know, throwing out the taxbracket thing.
I just did a quick search, mebeing the marketer. Over twenty
twenty to 25,000 times a monthestimated, somebody is searching
(12:35):
online for tax bracket or whatis my tax bracket? And almost
12,000 people are clickingthrough to that. So there's over
12,000 people a month that feellike they're educated because
they know what their air quotestax bracket is. Right?
So I wouldn't say it'sdangerous, but it's it's
misinformation in a sense.Right? So in in your profession,
(12:56):
you know, the the private taxpractice, you know, you guys
being tax pros, you you reallylook 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 (13:05):
It's the only light. It's not even There
you go. Yeah. It's the it's themost important thing when you're
doing tax planning. Thenliquidity.
Right? So if you don't if youwanna control your marginal tax
rate, you might wanna considerone of, you know, some type of
tax planning implementations.They could be behavioral. They
could be tax advantageinvestments. They could be tax
mitigation strategies.
It just depends on yoursituation. Let's go through the
(13:29):
other items. I had a I have areal story where I had a client
that was in the 80% marginal taxrate because they were getting
the premium tax credit, meaningmeaning they were getting that
subsidy from the government, andtheir income threshold went over
it, over that threshold, had topay back almost $20,000 of those
premiums. It because theirincome was $30,000 too high.
John Tripolsky (13:52):
Dude, that's painful.
Chris Picciurro, CPA (13:54):
So that's what I'm saying, marginal tax
rate. So here are the differencehere are the items that you have
to be aware of that aredifferent or re the reason that
your marginal tax rate is gonnabe different than your tax
bracket. So your child taxcredit, that's a phase out. Your
additional child tax credit,your child independent care
credit, your earned income taxcredit. Now now I'm gonna talk
(14:17):
about the your lifetime learningcredit and AOTC, American
Opportunity Tax Credit.
Those are your those are goingto be your educational credits.
Retirement savers contributioncredit. We talked about that, I
know, on the YouTube channel.Your premium tax credit that has
to do with when you're, whenyou're getting a subsidy based
on in your income, the adoptiontax credit, and then there's a
(14:40):
bunch of other hidden taxes.Remember we did a we did some
content on hidden taxes also.
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 thosehidden taxes with Social
Security, IRMAA, Medicare incomerelated monthly adjustment
amount.
(15:00):
So if you are on Medicare andyour income exceeds a certain
amount, there's a two year lookback where the the government's
going to say, John, your incomewas too high, so we're going to
increase the amount you'repaying for the same insurance
that you have. That's a hiddentax. That's part of your
marginal tax rate, So definitelytalk to your tax professional
(15:25):
about what the heck I know thisis probably the feistiest I've
ever been on one of thesepodcasts.
John Tripolsky (15:30):
No. LLC got hot. You were getting
Chris Picciurro, CPA (15:32):
real real spicy from
John Tripolsky (15:34):
LLCs. You survived.
Chris Picciurro, CPA (15:36):
It's your marginal tax rate, and that
drives everything. And for usand the teaching and make sure
I'm so tired of these you know,we have to remember, ideas are
cheap and implementation'svaluable. So what I mean by that
is make sure your tax planningimplementation matches your
marginal tax rate need. Ifyou're a low marginal tax rate,
(15:56):
you shouldn't be putting moneyin your pretax IRA. Right.
If you're you should probably doa Roth. If you're a high
marginal tax rate, you should bedoing high marginal tax rate
implementations. So make surethat you're pairing your
implementations with yoursituation.
John Tripolsky (16:16):
And that is a great place to end this one at.
Right? So doing implementationson your own, again, coming at
this from a different vantagepoint than Chris', if anybody's
listened to this. Couple thingsI got for you, then we'll wrap.
Find somebody that you workwith, that you trust, that
understands your situation, butthen also understands
implementations.
Chris, I think that line is oneof the best you've ever said.
(16:37):
We've been here for years. If Iever got a tattoo with a quote
from you, sir, would say that.Right? That that ideas are
cheap.
Implementations are valuablebecause it stretches across
everything everybody does everyday.
Chris Picciurro, CPA (16:47):
Right.
John Tripolsky (16:47):
But like you said, only only following
through with thoseimplementations that make sense,
that pair with your MTR. Mhmm.That's the only way to do it.
Otherwise, you just you're justthrowing things out in a sense.
So find that person.
Follow through thoseimplementations. Don't just
shoot from the hip and say, oh,this is gonna work. I'm gonna do
(17:08):
it. Go that route. Lean onpeople.
Lean on people for it. The TTFcommunity. We have our private
Facebook group,defeatingtaxes.com. There's more
people that are in that. It's II can't I don't know exactly
what the ratio is, but there isa lot of tax professionals in
that.
So don't think you're just gonnaask a question and you're gonna
get advice from other peoplelike yourself. You're gonna get
some professional information.Do that, and then subscribe to
(17:31):
the YouTube channel. Do asearch. I don't know if you guys
knew that.
You can actually search withinour channel on keyword, search
for some stuff, and I promiseit's in there. We've covered
pretty much everything to atthis point, I don't think we're
really introducing anything new.We're just clarifying, digging
in deeper, and then introducingupdates to things. Would it
that'd probably be fair to say,right, Chris, based on our
content schedule?
Chris Picciurro, CPA (17:50):
Sure. And other also remember with
marginal tax rate, factoringyour state and local tax. And
your state and local tax mightbe based on different things.
You know, a lot of statesexclude retirement income up to
a certain level. Most of themexclude, Social Security income
up to a certain level.
So, again, your marginal taxrate has to be determined, and
(18:13):
and I'm and that's your overalltax. Right? Not just your
federal tax.
John Tripolsky (18:18):
So yes. Absolutely. And, like we said,
Chris deals with this stuffevery single day and has been
for a while, so you're hearingfrom somebody that knows exactly
how impactful that is. And justagain, we're gonna throw the tax
bracket out just because I likethrowing sticky notes today for
some apparent reason. I liketrying to clog my vacuum when
it's running around here later.
But subscribe to the YouTubechannel, as we mentioned. Get on
defeating taxes. Ask usquestions. Don't think you have
(18:41):
nowhere to go. We are here.
We'll get you the answers. We'llget you the place you need to
go. Until then, we'll see youguys next week here on the
teaching tax flow podcast. Sameday of the week, different date,
completely different topic.Every week, everybody.
Disclaimer (19:06):
For all tax and legal advice, please consult
your CPA or attorney. Investmentadvisory services are offered
through Cabin Advisors, aregistered investment advisor.
Securities are offered throughCabin Securities, a registered
broker dealer. The content ofthis 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 otherinformation contained in the
(19:27):
memorandum.
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