10.4 Q individual #4-11deductions, filing returns

Put these in order of highest to lowest

​ 1) ​ (a)  

2) ​ (b)  

3)​ (c)  

• gross income
• deductions
• AGI

Answer explanation

Your AGI is lower than your gross income

and in this case, the deductions are smaller than both

https://drive.google.com/file/d/1_6aSqVHqMn5dgfNVZDoHLvJ4wxVzGVdN/view

What is AGI?

​ (a)   ​ (b)   ​ (c)  

• adjusted
• gross
• income
• available
• greatest
• internal
• application

https://drive.google.com/file/d/1_6aSqVHqMn5dgfNVZDoHLvJ4wxVzGVdN/view

Adjusted gross income - ​ (a)   = taxable income

Tax bill - ​ (b)   = Final tax bill

• tax deduction
• tax credit
• AGI
• tax refund
• taxable income

https://drive.google.com/file/d/1_6aSqVHqMn5dgfNVZDoHLvJ4wxVzGVdN/view

According to this example, your ​ (a)   will be lower if you have a $10,000 (b)   . A $10,000 ​ (c)   will reduce your taxable income but your tax bill would be higher.

• tax credit
• AGI
• taxable income
• tax bill
• tax deduction

https://drive.google.com/file/d/1_6aSqVHqMn5dgfNVZDoHLvJ4wxVzGVdN/view

Which of these is deducted from your AGI?​ ​ (a)  

• AGI
• taxable income
• tax deduction
• tax credit
• gross income

https://drive.google.com/file/d/1_6aSqVHqMn5dgfNVZDoHLvJ4wxVzGVdN/view

Which of these is deducted from your calculated tax bill?​ ​ (a)  

• AGI
• taxable income
• tax deduction
• tax credit
• gross income

Would you rather want to take a tax deduction or a tax credit?

• Tax deduction

• Tax credit

• Not sure

Answer explanation

Tax credits are generally considered to be better than tax deductions because they directly reduce the amount of tax you owe. The effect of a tax deduction on your tax liability depends on your marginal tax bracket

When filing your tax return, you can lower your tax bill by claiming a tax deduction. You can either:

Take the standard deduction: a large, fixed dollar amount determined by federal government that tax year, 

OR

Itemize your deductions: the government provides a list of hundreds of smaller deductions, and you deduct all those that you qualify for. This usually takes longer, and you need written proof for every deduction you are claiming.

Why would someone itemize deductions instead of using the standard, fixed amount?

• If the total itemized deductions are higher than the fixed standard deduction

• If the fixed standard deduction is higher than the itemized amount

• If the standard deduction increases for that tax year

• If they want to look good to the IRS and would like an audit

https://taxfoundation.org/wp-content/uploads/2020/07/Tax-Basics-How-Is-Tax-Liability-Calculated.png

In order to have a lower taxable income, which should this person choose?

• itemized

• standard

• don't pay taxes this year

https://taxfoundation.org/wp-content/uploads/2020/07/Tax-Basics-How-Is-Tax-Liability-Calculated.png

This image shows that

• one person can be taxed in a few different tax brackets.

• all of your money is always taxed at one percent in one bracket.

• in scenario 1, this person would pay 22% tax on $100,200 which is $22,044.

• in scenario 2, this person would pay 10% tax on $97,000 which is $9,700.