Which options best describe examples of items that may be used to reduce the amount of your taxable income? (Select all that may apply).
tax credits
tax deduction
interest income
exemption
Is it a and b
a, b, and d.
Yes, the options "tax credits" and "tax deduction" are examples of items that may be used to reduce the amount of taxable income. To understand why, let's break it down:
1. Tax Credits: Tax credits directly reduce the total amount of tax you owe. They are usually provided by the government as an incentive for certain expenditures or activities. For example, if you qualify for a $1,000 education tax credit, it means you can reduce your total tax liability by $1,000.
2. Tax Deduction: A tax deduction, on the other hand, allows you to subtract certain expenses from your taxable income. Deductions reduce the amount of your income that's subject to tax. Common tax deductions include mortgage interest, student loan interest, and certain medical expenses.
So, options "tax credits" (option a) and "tax deduction" (option b) are valid choices as they can both help lower your taxable income.