Question

Conrad and jill have a taxable income of 63,670. they discovered that they are able to receive $1,500 tax credit for purchasing an energy efficient furnace. How will this tax credit affect their taxes?

A) the tax credit will increase their taxable income by $1,500
B) the tax credit will reduce their taxable income by $1,500
C) the tax credit is added to the tax owed, not the taxable income
D) the tax credit is subtracted from the tax owed, not taxable income

Answer 1

 The answer is letter D. The tax credit will be subtracted from the tax owed, not taxable income. This is because a tax credit is something that will be deducted or offset to your liability and that is the tax you owed based on your own taxable income.