$1 in tax deductions is worth the most in terms of a reduction in total tax owed

Question

$1 in tax deductions is worth the most in terms of a reduction in total tax owed for which of the following taxpayers?

Question 3 options:

Joe, who is on Social Security and does not file taxes

Mary, who is in the 15% marginal tax bracket

Jose, who is in the 30% marginal tax bracket

Bob, who is in the 35% marginal tax bracket

Sally, who is on the 30% marginal bracket and takes the standard deduction

A)

Joe, who is on Social Security and does not file taxes

B)

Mary, who is in the 15% marginal tax bracket

C)

Jose, who is in the 30% marginal tax bracket

D)

Bob, who is in the 35% marginal tax bracket

E)

Sally, who is on the 30% marginal bracket and takes the standard deduction

Explanation / Answer

Option D is correct.

$1 tax deduction is worth highest for the person who falls in the highest tax bracket and has the highest marginal tax rate. IRS publishes the tax rate every year and as income of the tax payer changes, their marginal tax rate also change.

In the given problem, Bob has the highest marginal tax rate ( 35%), therefore, Bob would be benefitted the most because of $1 tax deduction.

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