Taxes Flashcards
1
Q
Refundable Tax Credit
A
Refundable tax credits have the potential to reduce your tax liability to less than $0, resulting in a refund.
2
Q
Nonrefundable Tax Credit
A
A nonrefundable tax credit can bring your taxes owed to $0, but it can’t trigger a tax refund.
3
Q
Tax Deduction
A
A deduction is a reduction of your taxable income. For example, for a taxpayer with a 22% tax rate, a $1,000 tax deduction will reduce her income by $1,000 and her tax bill by $220.
4
Q
Tax Credit
A
A tax credit is a dollar-for-dollar reduction in tax liability. It’s applied after your taxes are tallied. So a tax credit of $1,000 may reduce a filer’s tax bill by $1,000, no matter his tax bracket.
