Personal Finance

How Inflation Affects Your Income Tax Bill

Inflation is a constant threat to investors, who have to remain vigilant against its steady erosion of their portfolio's purchasing power. Yet with inflation having been under control lately, now's a good time to look at what impact inflation might have on your taxes when prices start to rise more sharply.

In the following video, Fool contributor Dan Caplinger looks at the various ways that inflation affects your taxes. As Dan notes, with tax brackets and deduction and exemption amounts tied to rising prices, earning a constant income actually leads to modest tax declines over the long haul. Yet if your income rises at the same rate as inflation, the net effect is typically a wash. Dan points out, though, that the biggest challen ge stock investors face is that capital gains and investment income are taxed without accounting for the impact of inflation. Taxes are something that every investor needs to take into account in choosing investments and assessing returns.

Nearly every American taxpayer faced a big tax increase when 2013 began, with higher payroll taxes affecting every worker and several new taxes on upper-income taxpayers. But you can fight back against higher taxes by using the tips you'll find in the Fool's latest special report. You won't want to miss the easy-to-follow strategies you'll find inside, so to get your completely free copy of the report, click here right now and start saving today!

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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