The world has faced a number of struggles in recent years. Among them, the global supply chain and economy have been increasingly prone to problems. Inflation is being felt in nearly every industry, and consumers are struggling with the costs of everything from housing to groceries.
Taxes may be the next big problem for many. Inflation and taxes are directly related.
Paychecks may be rising, but buying power is staying the same
Essentially, the labor shortage and the spiraling cost of consumer goods is forcing employers to pay more. However, that doesn’t necessarily mean that consumer buying power is any better.
When prices and pay go up at the same time, you get “bracket creep.” Taxpayers end up finding themselves in a higher tax bracket (meaning, of course, that the percentage of their income that they owe in taxes is bigger), but they really don’t feel any wealthier — and they’re not. They may actually find themselves pinched for cash, because the higher taxes and higher prices on goods leave them with less disposable income, despite having bigger paychecks.
While the Internal Revenue Service (IRS) has already made some revisions to the tax brackets for 2022 because of inflation, not all states do the same. In fact, 22 states have what’s described as a “major unindexed provisions” that translate into higher individual taxes despite the rise in consumer prices.
Whether you’re a professional who gets your income from a Limited Liability Corporation or a self-employed contract worker, this kind of situation can put you in a bind — especially if you’re already struggling to meet your tax obligations and stay afloat. Learning more about your legal options for both tax abatement and settling old tax debts can help.