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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 challenge 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!


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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