What is a Tax Shield?
” A tax shield can be a means by which either individuals or businesses reduce their overall tax owed. There are numerous types of tax shields. For individuals, especially in the middle class or above, having to pay interest on a home mortgage is considered a tax shield. Businesses may take on debt of many kinds in order to create a tax shield of some of their income. . Use of a tax shield proves that debt is not always a bad thing, particularly when the interest is tax deductible.
A tax shield can be a means by which either individuals or businesses reduce their overall tax owed. There are numerous types of tax shields. For individuals, especially in the middle class or above, having to pay interest on a home mortgage is considered a tax shield. Businesses may take on debt of many kinds in order to create a tax shield of some of their income. Use of a tax shield proves that debt is not always a bad thing, particularly when the interest is tax deductible. For instance, in the US, home mortgages allow homeowners to lower the amount of income that is considered taxable, by being able to deduct a portion of the amount of money they make in interest payments. This difference can help people be able to afford homes, since they can count on lower tax payments and greater amounts of net income. A renter, in contrast, wouldn’t be able to “shield” their income in the same manner, though some states offer small amounts of tax credits called renter’s credits. The difference
