Tax brackets for 2022 will likely be adjusted for inflation. Inflation Effects & Causes Inflation raises prices across all industries, businesses, and everyday purchases. But not all assets and tax classes are affected by inflation equally. According to Investopedia, inflation: Erodes purchasing power Encourages spending and investing Can cause more inflation Raises borrowing costs in the United States Can reduce unemployment Can also cause other complex effects Much of the current inflation problem has been caused by government regulations as well as spending and borrowing trends within big business and federal channels. Because the COVID-19 mandates were unprecedented, it disrupted global supply chains. These disruptions then caused the cost of living expenses to increase drastically and slowed economic growth. Inflation & Business Taxes What does that mean for businesses? You’re likely experiencing lower profits, higher supply costs, and reduced purchasing power. Each dollar you spent on your business has less impact overall when inflation is this high. And that puts a huge strain on operations, especially for smaller businesses. The increase in supply cost and decrease in business revenue will likely mean that your 2021 and 2022 business taxes look a little different than in past years. While your revenue and expenses fluctuate every year, inflation makes those fluctuations more drastic. Not having enough supplies to complete your products or services may mean adjusting business or shop hours, changing your inventory and supply buying processes, and more. If you are a business that regularly uses freelancers or independent contractors, these supply shortages may mean restructuring who you work with and how often. That affects your 1099 form filing, among other things. Inflation is addressed in certain parts of the tax code but ignored in others. For example, tax brackets only increase based on the change …
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