Financial Insights

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Financial Planning

How Do Periods of High Inflation Impact Your Taxes

Inflation is ravaging America’s economy as well as household budgets. Thankfully, when it comes to federal income taxes, inflation has some positive impacts. That’s because the IRS makes annual adjustments to certain tax limits and phase-out ranges. When inflation is high, as it is now, those adjustments can effectively increase the value of some federal tax credits and deductions. An example of this is the income tax brackets themselves. While the percent tax rates do not change year over year, the amount of income that places you in each of those brackets is adjusted for inflation every year. So next year, you may feel like you received a bit of a tax break even if your taxable income essentially stays the same because you could end up in a lower tax bracket. If you are a person who collects social security, you could also see a significant increase in your monthly payment amount as these payments are adjusted for inflation annually. Other common tax return items that are adjusted for inflation are the following:

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How Does a Spousal IRA Work?

The Individual Retirement Account, or IRA, is a retirement savings account that allows individuals to save and invest money for retirement on a tax-deferred basis. There are two primary types of IRAs: Traditional and Roth. In a traditional IRA, you generally get a tax deduction for your yearly contributions on your tax return, but the proceeds are taxed as ordinary income when they are withdrawn. In a Roth IRA, you cannot take a tax deduction for your yearly contribution, but the contributions and investment growth are generally 100% tax-free when used in retirement. For more information regarding Traditional vs. Roth IRAs that include contribution limits and exceptions, please see our comprehensive IRA guide outlining the difference between the two account types.

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About Rhame & Gorrell and Our history

Rhame & Gorrell Wealth Management (RGWM) and its advisors have been providing sound financial advice to The Woodlands and Greater Houston community for over 25 years. After decades of wide-ranging experience with various large firms throughout the investment management industry, Jeff Rhame and Michael Gorrell made the decision to become an independent fiduciary registered with the Securities and Exchange Commission (SEC) as a fee-only financial planning and investment advisory firm in 2016.

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