The Akais just finished calculating their taxable income for their 2014 joint federal income tax return. It totaled \($68,750\) and showed no tax credits. Just prior to filing their return, the Akais realized that they had treated a \($2,000\) outlay as an itemized deduction rather than correctly treating it as a \($2,000\) tax credit.

a. Use the tax rate schedule in Table 17.1 to calculate the Akais’ tax liability and tax due on the basis of their original \($68,750\) estimate of taxable income.

b. How much taxable income will the Akais have if they correctly treat the \($2,000\) as a tax credit rather than a tax deduction?

c. Use your finding in part a to calculate the Akais’ tax liability and tax due after converting the \($2,000\) tax deduction to a tax credit.

d. Compare and contrast your findings in parts a and

c. Which would you prefer, a tax deduction or an equal-dollar-amount tax credit? Why?

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TABLE 17.1 FEDERAL INCOME TAX RATES AND BRACKETS FOR INDIVIDUAL AND JOINT RETURNS (FOR TAXES DUE BY APRIL 15, 2015) Tax Rates 10.0% 15.0% Individual Returns $0 to $9,075 $9,076 to $36,900 25.0% $36,901 to $89,350 28.0% 33.0% 35.0% 39.6% Over $406,751 $89,351 to $186,350 $186,351 to $405,100 $405,101 to $406,750 Taxable Income Joint Returns $0 to $18,150 $18,151 to $73,800 $73,801 to $148,850 $148,851 to $226,850 $226,851 to $405,100 $405,101 to $457,600 Over $457,061