Which of the following would produce the largest financial benefit to a tax payer who earns $96000 and is in the forty percent marginal tax bracket and the twenty five percent average tax bracket? Assume that all items are options of equal importance.
A)A $5000 contribution to his/her child's RESP
B)A $5000 medical expense amount for orthodontics
C)A $5000 contribution to his/her TFSA
D)A $5000 contribution to his/her RRSP

Question

Quizplus · Accepted Answer

A $5000 contribution to his/her RRSP would produce the largest financial benefit. This is because RRSP contributions are tax-deductible and reduce the taxpayer's taxable income. In this case, a $5000 contribution would reduce the taxpayer's taxable income to $91,000, which would result in a tax savings of $2000 (40% of $5000). The other options - a contribution to a child's RESP, a medical expense amount for orthodontics, or a contribution to a TFSA - would not result in as large of a tax benefit.

Which of the Following Would Produce the Largest Financial Benefit