A strategy of reducing of income tax liabilities by taking allowable deductions...
Usually refers to depreciation deductions (and similar deductions that are non-cash expenses when deducted) that protects that amount of income from taxation. However, all allowable expenses, both cash and non-cash items, are tax shields because they reduce income and thereby reduce income taxes.
Tax shield is the amount of taxes you may save from a tax deduction or tax credit that you would otherwise pay without the deduction or credit. To calculate tax savings from a deduction, multiply the amount of the deduction by your marginal income tax rate. At a marginal income tax rate of 25%, a $2,000 qualified contribution to a company retirement plan may save you $500 in taxes. And if you paid $10,000 in home mortgage interest, you may save up to $2,500 in income taxes if you are in the same tax bracket. Your deduction for interest expense on mortgage and home equity debt may be limited. You may wish to consult a financial or tax adviser. For businesses, tax savings are realized on such deductible expenses as lease payments, interest on loan payments, and depreciation expense.
The present value of the anticipated tax savings which will accrue in the future as a result of the owner of capital (depreciable) assets claiming capital cost allowance in respect of them.
The reduction in a company's tax bill caused by an increase in a tax-deductible expense, usually depreciation or interest. The magnitude of the tax shield equals the tax rate times the increase in the expense.
The amount saved in taxes by taking deductions. To measure the tax shield benefit, multiply the amount of the deduction by your tax rate. For instance, if an investor deducts $1,000 in mortgage interest expense and is in the 28 percent income tax bracket, she enjoys a tax shield benefit of $280.
The reduction in income taxes that results from taking an allowable deduction from taxable income.
Deductions that result in a reduction of tax payments. The tax shield equals the amount of the deduction times the tax rate.