6 Strategies That Can Help You Avoid Year End Tax Bracket Creep

Wage increases are generally a great thing, but the added benefit of an income increase can be offset by the higher prices of goods in times of high inflation and the possibility of being nudged into a higher tax bracket. This phenomenon is known as tax bracket creep. The result? Not only do rising expenses stretch your budget, but that extra income could potentially amplify your tax dues and leave you with less net income than anticipated.

Although federal authorities adjust tax brackets yearly for inflation, many credits, deductions, and exemptions aren’t recalibrated, or they are lagging at best. This can subtly push up your effective tax rate, whether you opt for the standard deduction or itemize. For instance, the net investment income tax (NIIT) levied on gains, dividends, and interest hasn’t seen adjustments since its introduction in 2013. With a 3.8% surtax on items like home sales or interest on CDs, it’s essential to monitor any additional taxable income that may push you past $200,000 for a person filing single or $250,000 for a married filing jointly household. To help alleviate the tax pressure and counteract this tax bracket creep, consider these strategies: