Tax Credit VS Tax Deduction

Last updated over 1 year ago

5 questions

Required

Tax Credit VS Tax Deduction

Last updated over 1 year ago

5 questions

Required

True or False, Tax Credits and Tax Deductions are the same exact thing.

Required

True or False, Tax Credits and Tax Deductions both lower how much you will ultimately owe in Federal Income Taxes.

Required

True or False, Tax Credits and Tax Deductions can lower your Social Security and Medicare tax bill

Tax credits and tax deductions may be the most satisfying part of preparing your tax return. Both reduce your tax bill, but in very different ways.

The following two problems will look at the difference between tax credits and tax deductions.

Required

Tax Credit
Suppose you are getting taxed on $50,000 of your income. You are planning on filing as single for this years taxes.
Find how much you owe on the IRS tax table https://www.irs.gov/pub/irs-pdf/i1040tt.pdf
Now you receive a $2000 tax credit. This means you get to subtract $2000 off your tax bill that was found on the table.
What is your final amount due?

Tax Deduction
Suppose you are getting taxed on $50,000 of your income. You will file as single.
You have a $2000 tax deduction. This means you reduce your taxable income by $2000.
After the deduction, find how much you owe on the IRS tax table https://www.irs.gov/pub/irs-pdf/i1040tt.pdf
What is your final amount due?