Final answer:
Tax credits are applied to reduce the tax liability after the total taxes payable are calculated, providing a direct reduction to the tax bill. The correct answer to the question is B) after total taxes payable are calculated. Tax credits differ from deductions as they are not subtracted from total income but directly reduce the tax owed.
Step-by-step explanation:
Tax credits are important tools in the tax system used to reduce the amount of taxes that are payable. They are applied after you have calculated your taxable income, which is your adjusted gross income minus any deductions and exemptions. Once you know your taxable income, you can determine which tax rates apply to your income levels. However, beyond just tax rates, tax credits can further decrease your tax liability. Unlike deductions, which lower your taxable income, tax credits reduce your tax bill directly.
Based on the information given, tax credits are applied at the stage of calculating your taxes owed after you've determined your total taxes payable. Therefore, the correct answer to the question is B) after total taxes payable are calculated.
These credits come in various forms, such as the earned income tax credit, child tax credits, and credits for education expenses, among others. Additionally, some states have their own tax credits on top of those offered by the federal government. It's important to understand that tax credits are not subtracted from your total income or adjusted gross income but are deducted from your calculated tax liability.