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it is all about how to compute like mathematics

2007-02-23 20:13:25 · 2 answers · asked by gandalicious 1 in Education & Reference Homework Help

2 answers

Income
- deductions
----------------
Gross income
* tax rate
----------------
Tentative tax liability
- tax credits
----------------
Actual tax due


For tax rate, you look it up in the IRS schedule. It depends on your income level (higher rate at higher income levels). It's a graduated scale, so that you pay, e.g., 0% on the first $15K of income, 15% on the next $10K of income, etc.

The -'s above are minus signs, the * is a multiplication sign.

Note also tha there's a difference between deductions and credits -- deductions are subtracted from income, and credits are subtracted directly from the tax payable. So a credit of $1000 is worth $1000, whereas a deduction of $1000 is only worth $1000 times your marginal tax rate (the rate at which each additional dollar of income is taxed). So if you're in the 25% tax bracket, a $1000 deduction is worth $250.

2007-02-23 20:17:58 · answer #1 · answered by Pookie 4 · 0 0

Income
- deductions
----------------
Gross income
* tax rate
----------------
Tentative tax liability
- tax credits
----------------
Actual tax due


For tax rate, you look it up in the IRS schedule. It depends on your income level (higher rate at higher income levels). It's a graduated scale, so that you pay, e.g., 0% on the first $15K of income, 15% on the next $10K of income, etc.

The -'s above are minus signs, the * is a multiplication sign.

Note also tha there's a difference between deductions and credits -- deductions are subtracted from income, and credits are subtracted directly from the tax payable. So a credit of $1000 is worth $1000, whereas a deduction of $1000 is only worth $1000 times your marginal tax rate (the rate at which each additional dollar of income is taxed). So if you're in the 25% tax bracket, a $1000 deduction is worth $250.

2007-02-24 04:28:05 · answer #2 · answered by Ghost 2 · 0 1

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