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Effect of tax credit versus tax exemption Explain and calculate the differences resulting from a $500...

Effect of tax credit versus tax exemption

Explain and calculate the differences resulting from a $500 tax credit versus a $500 tax deduction for a single taxpayer with $44,000 of pre-tax income. The standard deduction in 2018 was $12,000 for single. Note that personal exemptions were suspended for 2018. Use Exhibit 3.3 to determine the corresponding tax rate. Round the answers to the nearest cent.

After-tax Income (Tax Deduction)

$  

After-tax Income (Tax Credit)

$  

Exhibit 3.3:

Single
Taxable Income Tax Rate
$0 - $9,525 10% of taxable income
$9,526-$38,700 $952.50 plus 12% of the amount over $38,700
$38,701 - $82,500 $4,453.50 plus 22% of the amount over $82,500
0 0
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Answer #1

Tax deduction reduces the Taxable Income where as Tax Credit reduce the Tax liability. As calculated above Tax credit give more benefit in given case as comparr to Tax deduction.

Note: Treating Standard deduction as deduction for the year, as you have not mentioned of which year we are calculating After tax income.

Hope this meets your purpose and added contribution towards your success. Do like the answer. Feel free to ask any of your concern.

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