Roger is considering making a $6,000 investment in a venture that its promoter promises will generate immediate tax benefits for him.Roger, who does not anticipate itemizing his deductions, is in the 30% marginal income tax bracket.If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Roger's tax liability decline because of the investment?
A)$0
B)$1,800
C)$2,200
D)$2,400
E)None of these.

Question

Quizplus · Accepted Answer

Roger's tax liability will decline by $2,400 because a tax credit directly reduces the amount of tax owed, dollar for dollar. With a 40% tax credit on a $6,000 investment, the reduction in tax liability is 0.40 * $6,000 = $2,400.

Roger Is Considering Making a $6,000 Investment in a Venture