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Chapter 3

Financial Planning Exercise 7

Effect of tax credit vs. tax exemption

By defining after-tax income, demonstrate the differences resulting from a $1,000 tax deduction versus a $1,000 tax credit for a single taxpayer in the 12% tax bracket with $34,000 of pre-tax income.Round your answers to two decimal places. (UseExhibit 3.3.)

After-tax income with tax deduction$

After-tax income with tax credit$