Compare and contrast a $10,000 adjustment, $10,000 of tax credits, and $10,000 of itemized deductions.?

Question

Which would you prefer to have on your tax return? Why?

Answer 1

The $10K adjustment goes on the front of the tax return. It reduces the AGI and subsequently the taxable income. The reduction is only as good as the tax bracket.

The $10K itemized deduction is often limited by the AGI and it also reduces taxable income. The reduction is only as good as the tax bracket.

The $10K tax credit is after the income taxes are calculated and reduces the tax dollar by dollar.

So...given a choice, credit first, adjustment second, deduction third.

Answer 2

The only thing I'd add to v b's correct answer is that the $10K of itemized deductions only does you any good if that's more than your standard deduction and the only benefit is your tax bracket times the amount the $10K is OVER your standard deduction. If you are filing as married filing a joint return, the standard deduction is higher than that so it would do you no good at all and you wouldn't even list the deductions. If you are filing with any other status, you'd itemize.