Question

Problem 2:

1. Victoria has a marginal tax rate of 33%. She realizes that she neglected to include a $5450 tax deduction. If she includes thus $5450 tax deduction on her tax return, how will thus affect her taxes?
2. If she had forgotten $5450 tax credits ( i.e. children’s arts amount and adoption expenses) instead if a $5450 tax deduction, how wold her taxes be affected is she were to include these tax credits on her tax return? (assume year in 2017)

Answer 1

2.a.A Tax deduction is amount of tax paid upfront on the income so when filing the annual tax returns, it is going to lower your adjusted gross income so that amount that you get shaved off your tax bills is directly linked with your tax bracket. So tax deduction of $ 5450 will be deducted from adjusted gross income.

2. Amount of $ 5450 as tax credit is directly linked with lowering your overall tax liability.

Once you calculate your overall tax liability, you will be able to deduct your tax liability directly through your accumulated tax credits.

So $ 5450 will directly be deducted from overall tax liability of individual.