deductions that result in a reduction of income tax payments. The tax shield is computed by multiplying the deduction by the tax rate itself. For example, assume an annual depreciation deduction is $3000 and the tax rate is 40%; the tax shield, or tax savings on depreciation is $3000 ¥ .4 = $1200. The company saves $1200 annually in taxes from the depreciation deduction. The higher the deduction, the larger the tax shield. Therefore, an accelerated depreciation method produces higher tax savings than the straight line method. Note that the term applies to other non-cash charges (e.g., amortization and depletion) as well.
deductions that reduce tax liabilities. For example, mortgage interest, charitable contributions, unreimbursed business expenses, and property tax expenses can be considered tax shields if a taxpayer qualifies for the deduction. The higher the marginal tax rate, the more the deduction is worth.
deductions that reduce tax liabilities. For example, mortgage interest, charitable contributions, unreimbursed business expenses, and medical expenses can be considered tax shields if a taxpayer qualifies for the deduction. The higher the marginal tax rate, the more the deduction is worth.
