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