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A person has $200,000 in taxable income for a year and pays a 10 percent income tax rate, equal to $20,000. Which action would reduce the amount the person paid in taxes to $10,000?A.Receiving a $10,000 tax creditB.Receiving a $10,000 tax deductionC.Receiving a $190,000 tax creditD.Receiving a $190,000 tax deductionSUBMITarrow_backPREVIOUS

Question

A person has 200,000intaxableincomeforayearandpaysa10percentincometaxrate,equalto200,000 in taxable income for a year and pays a 10 percent income tax rate, equal to 20,000. Which action would reduce the amount the person paid in taxes to 10,000?A.Receivinga10,000?A.Receiving a 10,000 tax creditB.Receiving a 10,000taxdeductionC.Receivinga10,000 tax deductionC.Receiving a 190,000 tax creditD.Receiving a $190,000 tax deductionSUBMITarrow_backPREVIOUS

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Solution

The action that would reduce the amount the person paid in taxes to 10,000wouldbeA.Receivinga10,000 would be A. Receiving a 10,000 tax credit.

Here's why:

A tax credit is a dollar-for-dollar reduction in the actual tax bill. So if the person receives a 10,000taxcredit,itdirectlyreducestheirtaxbillfrom10,000 tax credit, it directly reduces their tax bill from 20,000 to $10,000.

On the other hand, a tax deduction reduces the amount of income that is subject to tax. So if the person receives a 10,000taxdeduction,itwouldreducetheirtaxableincomefrom10,000 tax deduction, it would reduce their taxable income from 200,000 to 190,000.Theirnewtaxbillwouldbe10190,000. Their new tax bill would be 10% of 190,000, which is 19,000,not19,000, not 10,000.

Therefore, the correct answer is A. Receiving a $10,000 tax credit.

This problem has been solved

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