Concepts:
1) Deductions lower your taxable income
2) Credits lower your taxes.
3) An exemption is an amount of money you can subtract from your Adjusted Gross Income, just for being you or having dependents.
Federal tax numbers for 2006 tax year
Standard deduction for married taxpayers filing a joint return - $10,300
Exemption for each dependent: $3300
So for a married couple without kid, you get total deduction = (10300+3300*2) = $16900
For a married couple with 2 kids, you get total deduction = (10300+3300*4) = $23500
Child deduction $5000 in my previous post is wrong, it should be $3300
Child Tax Credit = $1000.
For example, if you have 2 kids and you calculate you owe $7000 tax to Uncle Sam, the final tax you need to pay is $7000-$2000 = $5000
With itemized, if your mortgage interest + property tax + others > Standard deduction ($10300), you should itemize your tax return.
Guess I’m using tax software too much, forget those exact numbers le.