Final answer:
Taxpayers should apply tax credits beginning with the lowest dollar amount first to maximize their benefits. Taxable income is calculated by subtracting deductions and exemptions from AGI, and applying credits strategically is essential in reducing tax liability.
Step-by-step explanation:
When dealing with multiple tax credits, it is crucial to apply them in a strategic order to maximize the benefit. Taxpayers should not choose randomly (a), nor should they use alphabetical order (c), when applying credits against their gross tax. Instead, taxpayers should apply tax credits starting with the one that has the lowest dollar amount first (d). This method ensures that they utilize the full benefit of smaller credits before applying larger ones, which might have limitations based on the taxpayer's income level or tax liability.
To calculate taxable income, you subtract deductions and exemptions from your adjusted gross income (AGI). There are different tax rates applied to various income levels. Some individuals may also be eligible for tax credits, and they may need to calculate the alternative minimum tax as well. Applying credits strategically can be a key element in reducing overall tax burden.