Tax Tips (and other stuff): Inflation to the rescue?

Almost everybody seems to talk about inflation of the U.S. dollar as a "bad thing." In fact, it may not be as bad as we all think.

Problem: Average home price has dropped over 50 percent, but the mortgages on those homes remain the same. This has created several rippling effects. One out of every four homes are now worth less than the mortgage on them.

Solution: Inflation. If house price goes back up due to inflation, the upside down problem of the mortgage being larger than market value of home goes away. (At least in part.)

Problem: Average salaries (and Social Security and pension benefits) have not risen much for over a decade. This has created a larger pinch when going to buy staples such as food, gas, etc.

Solution: Acknowledged inflation opens doors for raises and cost of living adjustments.

Problem: U.S. debt is so large, we feel like it is near impossible to pay off.

Solution: Inflation makes it possible for that debt to shrink as a percentage of the economy without paying off hardly any of it.

I could go on and on with how inflation solves problems like increasing U.S. exports, helping banks make more loans, bringing in tourists from around the world, etc. The Feds get it. Much of their actions these last few years seem to actually be attempting to create inflation.

As a business owner, have you noticed your gross margin shrinking? Smaller and smaller profit left over to live on? Have your suppliers been raising their prices? Are you afraid to be the first to raise yours? I have some good news for you. You are not alone. The general attitude among your peers is watching to see when you can start raising your prices. It's already started with the "big boys." They have been shrinking the size of their packaging or even raising their prices a little at a time.

Yes, inflation can be a bit scary. Only because once it starts, it's hard to stay ahead of it. This requires vigilance and careful attention to your monthly financials to make sure your gross margin and net profit are heading in the right direction. Of course, that requires a great bookkeeping system. In today's environment, if you don't have an accurate and real-time bookkeeping system in place, you need to take care of that pronto. (In our firm, we have noticed an increase in business owners who are coming in for help to get this problem taken care of. I hear the same from other CPAs.)

Are you ready for inflation? It's starting to happen. And maybe it's about time.

• Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459.