Real World Graduation, Question 55: The Tax Code

RealWorldGraduation_Question_55_TaxCode   <– PDF

A man has earned income in a certain year. He took the “standard deduction” on his federal “gross income” tax, and as a result, his “taxable income” is taxed at 25%.  If he had made a $100 “tax-deductible” contribution that year, how much would his federal tax have changed?

a) “Tax deductible” refers only to state taxes, so his federal tax would remain unchanged.

b) His tax would have been reduced by $100.

c) The “tax deduction” only applies in the following year, so he would get a reduction next year, not now; his tax for the current year is unchanged.

d) His tax would be 25% of his gross income less the $100, or the amount previously calculated, whichever is less.

e) His total tax is 25% of $100 = $25.

(The answer is on p. 2 of the PDF.)

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