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 in overall prices.
The power of depreciation write-offs and schedules also decreases, as a $1,000 depreciation write-off in the tax year 2020 is going to be worth less than a $1,000 depreciation write-off in the tax year 2021.
Tips for Mitigating the Effects of Inflation on Your Business
Times of high inflation mean you and those in leadership roles within your business must concentrate on honing your business strategies.
One of the best – and most difficult – ways to mitigate the effects of inflation on your business is to analyze and evaluate your product or services streams. Comparing performance over time with the latest supply issues, costs, and workarounds can help you streamline your operations to decreases costs and help keep your inventory issues to a minimum.
While there’s nothing you or your business can do to increase overall purchasing power, there are still lots of tips for creating solutions that lessen the effect of or circumvent inflation issues altogether.
You can also consider your pricing strategy, from suppliers to final product pricing. Pivots in supply chains were initially driven by the need to find new suppliers to replace those that went out of business or pivoted their own operations and business model to combat COVID-19 mandates and other hurdles.
Your business could also likely benefit from some targeted analysis of your pre-and post-COVID pivots and process changes. Are there any vendors you chose simply because they were the only ones able to fill your orders during shutdowns and other pandemic-created issues?
We are more than 2 years out from the big shutdowns and pivots – maybe it’s time to re-evaluate your processes and costs now that we aren’t in such a manic state of change. The things we implemented during 2020 and 2021 may now no longer serve their purpose. Now is the perfect time to see of there are better ways to move your business forward.
Start by identifying priority problem areas that you’d like to resolve in your business in the next 3 months to one year.
It might also be the time to strengthen your products’ pricing. Many companies, from apparel to grocery delivery services, to Amazon Prime memberships are increasing prices. So long as you are transparent about the increases – and why they are necessary – most of your customers will understand.
This may mean evaluating your supply chain risks as well, including common issues like:
- Overdependence on a single supplier
- Using suppliers who have to import or have long lead times
- Hard-to-store items that are heavy, hazardous, or perishable
Rising Costs & Inflation? Let eFile360 Help with Form Filing
Another way to streamline your processes during times of high inflation includes leveraging technology. Creating automated or online processes is going to save you time and money. And that’s another reason for you to spend time checking our eFile360’s e-filing solutions.
Inflation puts a lot of stress on business owners to even do the things they were doing normally throughout the pandemic. Why make your business taxes any more complicated when you have more important things to focus on right now?
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Streamlining is important this year. Let eFile360 help you kick off your big moves and save you time and money doing it.
Inflation is complicated, but your business taxes don’t have to be. Sign up for a free eFile360 account.