Q: I keep hearing about inflation everywhere. It is affecting everything we buy and our bills have gotten so expensive. Is there anything good that we can expect from inflation?
A: Inflation. Inflation. Inflation. That is the story 2022. We hear about it everywhere and, worse, we see it at the grocery store, our subscriptions, the gas pump. Our bills just keep on rising and it feels like there is no end in sight.
Mild inflation is good, when it is in about the 2% range. It can increase demand short term because people buy now rather than later at a higher price. More demand means more production and more jobs. A lower inflationary rate can also remove a deflation risk, which means prices fall. When prices fall, it’s the opposite of economic growth. Deflation happened during the Great Depression and prices fill nearly 10%.
Now we are hovering around a 40 year high with inflation and it is hard for wages to keep up with the skyrocketing prices. That’s why this kind of inflation can hurt our economy so badly, the spending power of our money just dissipates.
There are some things that are effected by the current inflation that can be seen as a good thing:
1.) While tax rates don’t change (10%, 12%, 22%, 24%, 32%, 35%, and 37%) the income tax brackets can change. Ex. The Married Filing Jointly Taxable income in the 24% tax bracket was $89,051 to $170,050 in 2022. It has risen to $190,751 to $364,200. * That is a huge difference. That might mean that you are in a lower tax bracket in 2023.
2.) Retirement Plan contribution limits will often go up during times like these. Currently it is $20,500 for those number age 50 for your 401K. In 2023, it will go up to $22,500. IRA and ROTH IRA contributions haven’t gone up for years. In 2023, they will go up to $6,500 for those under the age of 50 and $7500 over the age of 50. **
3.) HSA accounts like retirement accounts can have limits that go up based on inflation numbers. The limit for 2023 for a family has risen $450 a year.*** More tax savings. Yay!
4.) Social Security is adjusted for Cost of Living every year. With a low inflation, sometimes there is no Cost of Living Adjustment. For 2023 it is 8.7%. If you are on Social Security, your pay check most likely got a bump.
5.) Tax Credits have gone up. For example, The Adoption Credit has gone up $1,060 in 2023 to $15,950. In 2022, it only when up $410. *
While there aren’t a lot of positives regarding inflation, take the wins where you can get them.
Get an early start and talk to your tax professional about these changes and how they can affect you for 2023.
Early bird gets the worm, you know.
Have a question for us that you want answered in our newsletter? Email your question to email@example.com
Investment advice offered through Integrated Financial Partners, doing business as One Vision Retirement, a registered investment advisor. The information in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. Integrated Financial Partners does not provide tax advice or services. Please consult a qualified tax advisor regarding your specific situation.