nflation is the general increase in prices and fall in purchasing power of money over time. Rising inflation can have a significant impact on your tax bill, as the tax brackets and other tax provisions are typically adjusted for inflation each year. Here’s how rising inflation may affect your tax bill in 2023.
First, let’s understand how the tax brackets work. The tax brackets are the income ranges at which different tax rates apply. For example, if you are a single taxpayer and your taxable income is $50,000 in 2023, you will be in the 22% tax bracket. That means that any income you earn above $40,125 (the upper limit of the 12% tax bracket) will be taxed at a rate of 22%. The tax brackets are indexed for inflation, which means that they are adjusted each year to account for the impact of rising prices.
The good news is that the tax brackets are adjusted annually to keep pace with inflation, which means that you are less likely to be pushed into a higher tax bracket simply because your income has increased due to rising prices. However, rising inflation can still have an impact on your tax bill in other ways.Unknown