Calculating Your 2008 Inflation Tax Credit

To calculate your 2008 Inflation Tax Credit, first find your average dollar asset wealth total for 2008 by adding the totals for Dec 31, 2007 and Dec 31, 2008 and dividing by 2. Then multiply the result by the price inflation rate for 2008, say .04. This is your 2008 Inflation Tax Credit. Then subtract this, and any prior year carry-over, from your 2008 income tax liability to produce your net 2008 tax liability.

For example, if your average 2008 dollar asset wealth was $250,000 and 2008 price inflation was 4%, then your 2008 Inflation Tax Credit is $10,000. If your 2008 income tax liability was $12,000, then your net 2008 tax liability would be $2,000. Alternately, if your 2008 income tax liability was $8,000, then your net 2008 tax liability would be zero and there would be a $2,000 inflation tax credit carry-over into TY2009.

Regards, Don

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Wealth?

I've never made declarations of wealth, only income.

Is the Inflation Tax Credit the only calculation based on wealth, or is wealth used to calculate other taxes?

I've never had to calculate a capital gain/loss for the IRS, but I always assumed that these were based on a single asset and not one's total assets/liabilities.

Thanks for the free tax advice,
Mark

Uh ?

Joke ? I never heard of an inflation tax credit and google has no relevant info on that.

One guy's explanation

Dan Lloyd is suggesting that inflation is the foreseeable result of government choices, and that it has the effect of transferring wealth away from the individual. In this sense, it functions like a tax. Consequently we should feel justified in reducing the other taxes we pay to offset its effects.

(I've made similar arguments in the past -- that people who praise "tax cuts" without corresponding spending cuts are deluded, as this policy cannot help but debase the currency in the long run which will have rather tax-like consequences.)

To carry Lloyd's tax policy forward, however, wouldn't we need to pay the balance of our taxes in non-inflated currency? Otherwise we'd be offsetting the cost of inflation while also claiming the benefit.

Dohhp!

I thought it was awfully enlightened of the IRS to recognize inflation as a tax and give you a deduction.

Since Don's credit benefited people in proportion to their wealth, I suspected it was an IRS setup to get people to establish a history of overestimated wealth before introducing a wealth tax.

I should have recognized it was a joke. What is the point of having a secret tax like inflation if you admit it and make it government-revenue neutral?

Thanks again for the free advice--I got my money's worth!

Mark