ChooseFI Podcast Episode Summary: "It's Big, But Is It Beautiful? Let's Talk About It... | Ep 557"

Release Date: July 28, 2025
Host: Brad Barrett
Guest: Sean Mulaney, "FI Tax Guy"

Introduction

In episode 557 of the ChooseFI podcast, titled "It's Big, But Is It Beautiful? Let's Talk About It...," host Brad Barrett welcomes Sean Mulaney, a renowned tax professional known as the "FI Tax Guy." Together, they delve into the recently passed "One Big Beautiful Bill" signed into law in July 2025, exploring its significant implications for the Financial Independence (FI) community.

Overview of the One Big Beautiful Bill

Brad Barrett [00:00]:
Brad introduces the topic by highlighting the urgency and relevance of the new bill, emphasizing that Sean has identified key provisions particularly pertinent to the FI community. He mentions that the episode will cover:

• Tax rate changes
• Standard and itemized deductions
• Premium tax credits
• Charitable contributions
• State and local tax deductions
• Senior deductions
• Qualified Business Income (QBI) deductions

Tax Rates and Standard Deduction

Sean Mulaney [02:33]:
Sean begins by tracing the history of personal tax changes back to the 2017 Tax Cuts and Jobs Act, which:

• Reduced Tax Brackets: For example, the 15% bracket was lowered to 12%, and the 25% bracket to 22%.
• Increased the Standard Deduction: Providing significant tax relief, especially beneficial for early retirees.

However, these provisions were initially set to sunset in 2026. The new bill has now permanently extended these lower tax rates and increased standard deduction amounts, offering greater planning certainty for FI enthusiasts.

Brad Barrett [04:57]:
Brad seeks clarification on the permanence of these changes, prompting Sean to confirm that the tax brackets and higher standard deduction are now "permanent" unless future congressional actions alter them.

Sean Mulaney [05:25]:
He elaborates that:

• Standard Deduction Increase: For 2025, the single filer standard deduction rises from $15,000 to $15,000 (presumably a typo and meant to increase slightly as mentioned later).
• Married Filing Jointly: Increased from $30,000 to $31,500.
• These adjustments are inflation-indexed, enhancing their long-term benefits.

Implications for Early Retirees and the FI Community

Brad Barrett [07:00]:
Brad discusses the dramatic increase in the standard deduction, noting that over 90% of taxpayers now opt for it over itemizing, thanks to its substantial rise.

Sean Mulaney [07:46]:
Sean emphasizes that early retirees benefit greatly because:

• Reduced Deductions: Typically lose out on mortgage interest deductions and often have lower state income taxes.
• Increased Standard Deduction: Provides a significant tax advantage, aligning with the FI goal of maximizing savings and minimizing expenses.

Charitable Contributions: New Provisions

Sean Mulaney [13:21]:
Sean introduces two key changes regarding charitable contributions effective in 2026:

1. Non-Itemizers:

   • Individuals who do not itemize can now deduct up to $1,000 per person in cash charitable contributions.
   • Quote [15:00]: “... non-itemizers deduction can provide up to $1,000 for singles and $2,000 for married couples, enhancing tax benefits for charitable giving.”

2. Itemizers:

   • A 0.5% floor on adjusted gross income limits the deductible amount for charitable contributions.
   • Example: For a $200,000 AGI, a $10,000 donation results in a $9,000 deduction after the floor.

Brad Barrett [17:36]:
Brad clarifies that the $1,000 deduction applies solely to cash contributions, not non-cash items like clothing or furniture.

Sean Mulaney [18:05]:
Confirms that only cash donations qualify for the non-itemizer deduction, ensuring clarity for listeners.

State and Local Tax (SALT) Deduction Increase

Sean Mulaney [23:26]:
Sean discusses the temporary increase in the SALT deduction cap from $10,000 to $40,000 for the next four years, effective 2025. This change primarily benefits:

• Accumulators: Individuals with high state and local taxes, such as those in New Jersey or New York.
• Retirees in High-Tax States: Enables more taxpayers to itemize deductions, providing tax relief.

Brad Barrett [27:18]:
Brad provides a concrete example:
A widow in New Jersey paying $25,000 in property taxes now surpasses the standard deduction threshold, allowing her to itemize and benefit from her deductions.

Senior Deduction: $6,000 per Person

Sean Mulaney [31:29]:
Introducing the new Senior Deduction, Sean explains:

• Eligibility: Individuals aged 65 or older by December 31st.
• Deduction Amount: $6,000 per person.
• Income Phase-Outs:
  • Singles: Phased out between $75,000 and $175,000 AGI.
  • Married Filing Jointly: Likely between $150,000 and $250,000 AGI.
• Benefits:
  • Applies regardless of Social Security status or retirement status.
  • Significantly reduces taxable income for seniors, enhancing financial security.

Brad Barrett [34:40]:
Brad underscores the impact by illustrating that married couples over 65 could exclude up to $46,700 of income from taxation in 2026, covering substantial living expenses with minimal federal tax liability.

Qualified Business Income (QBI) Deduction Extended

Brad Barrett [37:57]:
Brad inquires about the QBI deduction's status, remembering its expiration set for December 31, 2025.

Sean Mulaney [38:28]:
Sean confirms that the QBI deduction has been permanently extended at a 20% rate, which is excellent news for:

• Small Business Owners
• Side Hustlers
• Private Manufacturing Businesses

Premium Tax Credits and the 400% Federal Poverty Level Cliff

Sean Mulaney [39:32]:
Sean shifts focus to premium tax credits under the Affordable Care Act (ACA). Key points include:

• Cliff Reintroduction in 2026: Premium tax credits will be entirely unavailable for incomes exceeding 400% of the federal poverty level.
• Historical Context:
  • First Era (2014-2020): Flat cutoff at 400% FPL.
  • Second Era (2021-2025): Gradual phase-out above 400% FPL.
  • Third Era (2026 onwards): Returns to a flat cutoff, though slightly improved by the new bill.

Bronze is Gold Planning

Sean Mulaney [42:45]:
Sean introduces the "Bronze is Gold" strategy as a response to the upcoming cliff:

1. Select a Bronze ACA Plan:
   • Lower premiums.
   • Eligibility for Health Savings Accounts (HSAs).
2. Contribute to HSA:
   • For 2025, a married couple over 55 can contribute up to $10,750, offering both federal and state tax deductions.
   • Benefits:
     • Reduces Modified Adjusted Gross Income (MAGI), potentially qualifying for or increasing premium tax credits.
     • Provides a tax-free reserve for medical expenses.

Brad Barrett [44:24]:
Brad shares his personal analysis, favoring Bronze plans over Silver or Gold due to the balance between premiums and out-of-pocket costs, especially when combined with HSA contributions.

Strategies to Mitigate the Premium Tax Credit Cliff

Sean Mulaney [46:53]:
Sean outlines several strategies to avoid falling off the premium tax credit cliff:

1. Keep Ordinary Income Low:
   • Avoid high dividends and taxable income.
2. Use Roth Basis Withdrawals:
   • Tax-free access to Roth contributions to manage MAGI.
   • Quote [47:19]: “... you're using a Roth IRA distribution to avoid two separate taxes.”
3. Utilize Taxable Assets First:
   • Withdraw from taxable brokerage accounts to limit taxable income.
4. Strategic Roth Conversions:
   • Convert traditional IRA funds to Roth IRAs tactically to manage taxable income.

Brad Barrett [56:55]:
Brad emphasizes the importance of flexibility in retirement planning, advocating for diverse account types (taxable brokerage, traditional and Roth IRAs, HSAs) to optimize tax outcomes and maintain eligibility for premium tax credits.

Clarifications on Income Calculations

Sean Mulaney [57:19]:
Sean clarifies that the 400% FPL threshold refers to Modified Adjusted Gross Income (MAGI), which is primarily the top-line income with limited adjustments, such as adding back non-taxable Social Security income.

Conclusion and Future Considerations

Brad Barrett [58:35]:
Brad summarizes the episode, reinforcing the significance of the discussed tax provisions for the FI community and highlighting the need for strategic planning to maximize benefits under the new law.

Sean Mulaney [60:09]:
Sean mentions ongoing projects, including a forthcoming book on tax planning for early retirement, further aiding listeners in navigating the complex tax landscape.

Key Takeaways

1. Permanent Tax Rate and Standard Deduction Increases:

   • Enhanced planning certainty.
   • Significant benefits for early retirees using standard deductions over itemizing.

2. Charitable Contributions Adjustments:

   • New deductions for non-itemizers.
   • Impact on itemizers with the introduction of a 0.5% floor on charitable deductions.

3. SALT Deduction Cap Increase:

   • Temporary boost from $10,000 to $40,000, aiding high-tax state residents.

4. Senior Deduction:

   • $6,000 per individual aged 65+.
   • Broad applicability regardless of retirement or Social Security status.

5. QBI Deduction Permanently Extended:

   • Continued support for small business owners and side hustlers.

6. Premium Tax Credit Cliff in 2026:

   • Strategies like "Bronze is Gold" planning, Roth basis withdrawals, and maintaining low taxable income are essential to mitigate the loss of premium tax credits.

7. Flexibility in Withdrawal Strategies:

   • Utilizing Roth IRAs and HSAs to manage taxable income effectively.

Notable Quotes

• Sean Mulaney [22:25]:
  “If I give $100 to charity and I deduct it... you're only going to get at most, depending on the circumstances, let's just call it 37 cents on the dollar.”

• Brad Barrett [36:26]:
  “Maybe your life at that point only costs about $4,000 a month and that's pretty much covered right there on almost zero dollars of federal income tax liability.”

• Sean Mulaney [46:53]:
  “...you're using a Roth IRA distribution to avoid two separate taxes.”

• Sean Mulaney [57:42]:
  “This is top line. It's modified adjusted gross income. For most taxpayers, it's just simply their adjusted gross income.”

Resources Mentioned

• Sean Mulaney's YouTube Video:
  A 15-minute deep dive on premium tax credits and the One Big Beautiful Bill.

• Upcoming Book:
  "Tax Planning to and Through Early Retirement" by Sean Mulaney and Cody Garrett, slated for publication in late Q3 to early Q4 2025.

Final Thoughts

This episode of ChooseFI provides an in-depth analysis of the newly passed tax bill, offering valuable insights and actionable strategies for the FI community. By understanding and leveraging these tax provisions, listeners can optimize their financial plans to achieve and sustain financial independence more effectively.