Question

Select the correct answer. How can a nonrefundable tax credit reduce the amount of taxes owed? A. It can reduce the amount of tax owed to zero, but it can’t result in a refund. B. It can reduce the amount of tax owed to zero, and it can result in a refund. C. It can reduce the adjusted gross income before the tax liability is determined, but it can’t result in a refund. D. It can reduce the adjusted gross income before the tax liability is determined, and it can result in a refund. E. It can reduce the gross income before deductions are applied, but it can’t result in a refund.

Answer 1

A nonrefundable tax credit reduce the amount of taxes owed as it can reduce the amount of tax owed to zero, but it can’t result in a refund.

Option: A

Explanation:

A tax credit  which would only reduce the debt of a taxpayer to zero is understood as a non-refundable tax credit. The money left from the loan would be immediately relinquished by the taxpayer and does not produce a tax refund if the future loan raises the taxable income like a refundable loan would. Often, a non-refundable benefit may be called a wastable tax credit, that can be compared with refundable tax credits.

An individual taxpayer with both refundable and non-refundable tax credits, if he estimates his or her non-refundable credits before implementing his eligible refundable credits, will increase his overall credit value. Secondly, non-refundable tax deductions can be used to reduce the taxes owed.