Mingming and Xavier,unrelated single taxpayers,have each incurred a $1,000 expenditure.Before considering this expenditure,Mingming has taxable income of $500,000 and Xavier has taxable income of $32,000.Assume the expenditure qualifies as either a tax deduction or a 25% credit.Which of the following statements is correct?
A)Mingming will prefer the credit,but Xavier will prefer the deduction.
B)Mingming will prefer the deduction,but Xavier will prefer the credit.
C)Both taxpayers will prefer the credit.
D)Both taxpayers will prefer the deduction.

Question

Quizplus · Accepted Answer

B)Mingming's marginal tax rate is 39.6% so she will receive higher tax savings from a deduction than a 25% credit,but Xavier's marginal tax rate is 15% so he will receive larger tax savings from the 25% credit.

Mingming and Xavier,unrelated Single Taxpayers,have Each Incurred a $1,000 Expenditure