#3 Question: Does every single dollar of tax deductions means a $1 reduction in taxes due?
If you thought that every single dollar of your tax deductions actually equals a dollar reduction in taxes, you were wrong. The dollars you deduct only minimize your tax bill based on the amount of your actual marginal tax rate. The marginal tax bracket for you refers to the tax rate you actually pay on your last dollar of income.
For instance, if your marginal tax rate is 22 percent, and you have, let’s say, a $1,000 deduction, you have to multiply the amount of your deduction by your marginal rate in order to know exactly the amount of money you actually save (in this case the amount of money saved is $220).