1.A tax exemption allows you to reduce your adjusted gross income and thus gives you savings on your tax owed. 1. Retirement savings can be counted as tax exemptions to reduce your adjusted gross income. 2.A deduction legally decreases your taxable income and thus lowers your tax liability. 2.Your tax liability can be decreased by deducting expenses from your taxable income.

3.The government allows expenses for some specific items to be counted as tax credits which means those expenses are also counted as tax payments. 3.Spending for specific items can sometimes be treated as tax credits. Thus money spent on a specific expense can also be counted as a tax payment even though the money wasn’t actually paid for taxes. 4. Withholding is money deducted from the wages in the paychecks given to an employee. It is used to pay the employee’s taxes. 4.The process of deducting money directly from employees’ paychecks in order to pay their taxes is called withholding.

5. Deductions, exemptions and credits are all legal methods of tax avoidance that allow a person to reduce their tax liability. 5. Tax liability can be legally reduced through tax avoidance. This can be accomplished by following the government’s rules to qualify for deductions, exemptions, and credits.