Name and describe the four general categories that reduce your taxable income, therefore reducing your tax liability

What will be an ideal response?

Answer: Adjustments to income allow certain legal reductions in gross income. Examples include IRA contributions, moving expenses, self-employment tax and retirement plans, and alimony payments. Itemized deductions consist of medical and dental expenses, state, local, and real estate taxes, home mortgage and investment interest payments, gifts to charity, theft and casualty losses, and miscellaneous deductions. As an alternative to itemizing deductions, the standard deduction may be used. Personal and dependency exemptions serve to further reduce taxable income. Finally, credits are subtracted directly from the tax liability, and while most credits are non-refundable, a few, such as the earned income credit allow for a refund in excess of taxes paid. Examples of credits include child and dependent care expenses, hope scholarship credit, lifetime learning credit, child credit, the earned income credit., adoption credit, and the health care premium credit. Note that the standard deduction amount and the exemption amount are adjusted upward annually in response to inflation.