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-List four possible tax deductions, and explain the effect that a tax deduction has on taxable income and on income tax due.

Question

Quizplus · Accepted Answer

The Answer is 1. Charitable contributions: Donations to qualified charitable organizations can be deducted from taxable income.

2. Mortgage interest: The interest paid on a mortgage for a primary or secondary residence can be deducted from taxable income.

3. Medical expenses: Medical expenses that exceed a certain percentage of your adjusted gross income can be deducted from taxable income.

4. Business expenses: Self-employed individuals can deduct business expenses such as office supplies, travel expenses, and professional development costs.

The effect of a tax deduction on taxable income is that it reduces the amount of income that is subject to taxation. This means that the taxpayer's taxable income is lowered, resulting in a lower tax liability. For example, if a taxpayer has a taxable income of $50,000 and claims $5,000 in tax deductions, their taxable income would be reduced to $45,000.

The effect of a tax deduction on income tax due is that it reduces the amount of tax owed to the government. Using the same example as above, if the taxpayer's taxable income is reduced to $45,000 due to deductions, their income tax due would be calculated based on the lower taxable income, resulting in a lower tax bill. This can lead to significant savings for the taxpayer.

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