Inflation and Your Taxes

Alexis DuffyNewsroom

Image of Ben Franklins face as seen on money

You’re probably well aware of inflation’s sting in recent months, with higher prices across the board from cars to groceries to energy. The consumer price index climbed 7.5%   last year–the biggest jump in 40 years.1

What you may not know, however, is that inflation may have an impact on your taxes in a variety of ways. That’s because lawmakers have taken a scattered approach to indexing various tax provisions for inflation over the years.

Here is how your taxes could be affected in several key areas:

  • Real estate. If you sold a home last year and are subject to capital gains taxes on profits, the amount before taxes kick in remains at $250,000 for single filers and $500,000 for married couples filing jointly–amounts that have not changed since the provision was enacted in 1997. Likewise, caps on state and local property, income and sales tax deductions have not budged since they were enacted in 2018. The $10,000 limit remains in place, despite rapidly appreciating property values and associated taxes. House Democrats did pass an increase to $80,000 through 2030, but it’s a provision in the currently stalled Build Back Better legislation. 2,3
  • Income. Income brackets are indexed, meaning that you may not be subjected to higher rates simply because you’ve received larger-than-usual raises due to higher cost-of-living increases, pay jumps from job moves, or adjustments to a tight labor market. That helps avoid bracket creep—at least in federal taxes. The take-home pay of wage earners, who are making 7.3% more on average since the pandemic, may also rise because of inflation adjustments to withholding tables. The standard deduction was also adjusted upward slightly, to $25,100 for married couples, up $300 from the prior year. Married filing separately and singles get an increase of $150 to $12,550. 4, 5, 6, 7
  • Retirement. The biggest impact inflation will have on your retirement savings may be the erosion of its value. But for those who are still saving, increases to tax-deductible contributions to retirement accounts can help. If you contribute to a 401k, it’s now tax deductible up to $20,500 for those under 50, a hike of $1,000. Contributions to traditional and Roth IRAs remain capped at $6,000 (it can only be increased in $1,000 increments). 8

We’re here to help you navigate tax season and inflation with confidence. Let us know if you have questions about any of the information above or if there’s anything we can do to assist.

1. U.S. Bureau of Labor Statistics, February 16, 2022, 
2. Investopedia, November 27, 2021 
3. CNBC, January 12, 2022  
4. Investopedia, December 04, 2020 
Tax Foundation , October 19, 2021
6. CNBC , January 7, 2022
7. IRS , October 26, 2020

8. Kiplinger , October 3, 2021 

Neither Pensionmark Financial Group, LLC (“Pensionmark”) nor its advisers provide tax or legal advice.  Please consult with an appropriate professional.
Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).