Pay Less Federal Income Tax

There's a big difference between a federal income tax reduction and a tax deduction.

For example, if you pay the 25% marginal tax rate, you save 25 cents for every $1.00 you deduct.

This is a deduction and it's frequently an important consideration when someone buys an IRA (Individual Retirement Account).

On the other hand, a tax credit is a dollar for dollar reduction of your tax liability.  Your marginal rate is less relavent.

Look at the front of the federal income tax Form 1040 (link opens new window).  Notice on Line 32 that an IRA can reduce your adjusted gross income.

Now, look at the back page. On Line 56 you'll see a place to record total tax credits. These reduce the tax itself.

Do you see the difference this can make with respect to your own tax liability?   Most taxpayers don't have a clue about this.

Let's examine how you can reduce your tax obligation.

• the income tax credit
• the income tax deduction
• the income tax deferment

Word of caution... do not consider this to be a product solicitation because you may not be eligible to participate due to lack of suitability.

What's more, the product might not fit your situation.  It's entirely up to you and your personal tax counsel to decide if you should look into anything more closely.