Question

Reductions for AGI are generally preferred over deductions FROM AGI because

A) They reduce taxable income on a dollar-for-dollar basis
B) They provide larger tax savings
C) They are available to all taxpayers
D) They result in higher tax liability

Answer 1

Reductions for AGI are generally preferred because they are available to all taxpayers and directly reduce taxable income on a dollar-for-dollar basis, potentially leading to a lower tax liability and qualification for more tax credits and benefits.

Step-by-step explanation:

Reductions for Adjusted Gross Income (AGI) are generally preferred over deductions from AGI because they are available to all taxpayers, regardless of whether they itemize or take the standard deduction. These reductions directly decrease your AGI, which in turn lowers your taxable income. This reduction in taxable income happens on a dollar-for-dollar basis, meaning that for every dollar you reduce your AGI by, your taxable income, and thus your tax liability, also goes down by a dollar. In comparison, deductions from AGI (also known as itemized deductions or below-the-line deductions) may be limited by certain thresholds, such as a percentage of AGI, and may not be available to all taxpayers. Moreover, since AGI is used to determine eligibility for various tax credits and benefits, reducing AGI can potentially qualify a taxpayer for more benefits.