Question

A taxpayer in the 25 percent tax bracket will receive the same tax benefit for a 100 expenditure that is classified as a deduction from AGI than he or she will receive for a100 expenditure that is classified as a deduction for AGI?

1) True
2) False

Answer 1

2) False.

A taxpayer in the 25 percent tax bracket will not receive the same tax benefit for a $100 expenditure that is classified as a deduction from AGI as they will for a $100 expenditure that is classified as a deduction for AGI. Deductions for AGI can potentially have additional tax benefits as they reduce the taxpayer's adjusted gross income (AGI) itself.

Step-by-step explanation:

A taxpayer in the 25 percent tax bracket will not receive the same tax benefit for a $100 expenditure that is classified as a deduction from AGI as they will for a $100 expenditure that is classified as a deduction for AGI.

When a deduction is classified as a deduction from AGI, it reduces the taxpayer's taxable income and, consequently, their overall tax liability. On the other hand, when a deduction is classified as a deduction for AGI, it reduces the taxpayer's adjusted gross income (AGI) itself, which can have additional tax benefits such as potentially qualifying them for certain tax credits or deductions that are based on AGI.

Therefore, a taxpayer will generally receive a greater tax benefit when they have a deduction for AGI compared to a deduction from AGI, even if both deductions are for the same amount.