2022 Tax Season: How to Combat Inflation With Your Tax Return

by Shelby Scott

As the COVID-19 pandemic endures and supply chain shortages wreak havoc nationally, inflation has become a prominent issue among the American people. The pandemic’s costly side effects have seen certain levels of society majorly depleting their savings. Others have taken out more than usual in credit card debt. However, to combat rising inflation, we have some ideas regarding how you may best use your tax return amid the worsening financial crisis with paper I bonds.

According to CNBC, annual inflation rose by 7.5% last month, growing at the fastest pace we’ve seen since February 1982. Statistics came from the United States Department of Labor, the crisis increasingly affecting expenses like energy, food, and shelter.

However, with the 2022 tax season in full swing, the outlet provided information on investing your return. Doing so intelligently may create greater financial opportunities for interested Americans.

Americans to Consider Investing for Growth of 2022 Tax Return

Above all else, the outlet recommended Americans look into I bonds. These are nearly risk-free and inflation-protected, making them a positive asset.

Already, investors have turned to the I bonds, purchasers paying a 7.12% annual rate through April. In this way, Americans may be able to preserve purchasing power. Further, what makes the I bonds a good investment is they protect the investor’s principal. On the other hand, Treasury inflation-protected securities may see initial values drop with an increase in interest rates.

Of the I bonds, Eric Walters of Summit Hill Wealth Management in Greenwood Village, Colorado stated, “What I really like about this program is that it’s an option for people to use their tax refund to build wealth.”

Walters added that many Americans consider their tax returns “free” money. But, diverting funds toward this particular investment may see participants able to buy more than the I bonds’ typical purchase limits.

I Bonds Pose Certain Challenges Amid Inflation

With that, however, potential investors should be sure to consider the I bonds’ downsides.

As inflation rises, the idea behind positive investments is to create a kind of emergency fund. However, with I bonds, investors aren’t able to access earnings for at least a year. So in case of a genuine emergency, investors will still need to seek out other, more immediate, solutions.

Additionally, the outlet detailed the two factors that make up the I bonds: a fixed rate and a variable rate. Every six months, these see adjustment based on the Consumer Price Index. As such, while April might witness investors securing the aforementioned 7.12% rate, that total may change in May. As a result, Leslie Beck, owner of Compass Wealth Management in Rutherford, New Jersey said, “These things are floating rate bonds with a base rate of zero.”

Consequentially, investors “could be stuck with a 0% return for a long time if inflation goes back to what it was for the last 10 years.”

Overall, then, Americans have a lot to consider before throwing this year’s return at the paper I bonds. But, should the positive outweigh the negative, Outsiders can ask to receive all or part of their refund in paper I bonds. In order to do so, be sure to fill out part 2 of Form 8888 with your return. Make sure all information is accurate and error-free, otherwise the request will be denied.