Inflation has created a cost crunch in many aspects of our lives. And as tax season gets underway, you may notice that's another area it's affecting.
According to a survey conducted by NerdWallet, most Americans are unaware of how inflation will impact their tax returns.
”With inflation, oftentimes that means that we're actually receiving a little bit more in terms of our salaries and wages, and tax brackets are done sort of as buckets of water,” said Ann Etter, partner at Goodney & Etter. "So you have your first bucket that fills up in the 10%, and then the 12%, and the 22%, and if your wages are increasing, but the buckets of water aren't getting big enough as quickly as your wages are increasing, then you're going to end up paying more of your salary, a higher percentage of your salary, in that highest tax bracket, or that last bucket that you're filling.”
But she says it’s not too late to try and make what you owe on your 2022 taxes a little bit lower.
IRS considering changing how tipped employees report tips
The IRS proposal would create one voluntary compliance agreement: The Service Industry Tip Compliance Agreement.
“If your income is below a certain level, you might be able to make a traditional IRA contribution, and thus lower your taxes some, and if you have the right kind of health insurance, to have an HSA,” she said. “If you haven't filled that up yet this year, then you might also have the opportunity to do that all before the tax deadline, and none of that can happen on extension.”
She says maximizing your retirement contributions through your employer can also be really helpful moving forward this year.
If you end up owing more on your taxes than you can afford, she suggests setting up a payment plan with the Internal Revenue Service rather than putting it on a credit card. Interest rates on those payments are another way inflation could come back to impact your taxes.
How likely are you to be audited this tax season?
Lawmakers in Washington recently allocated billions of dollars in taxpayer money to the IRS to increase the number of audits across the country.
