We can call it as a medium of reducing tax liability. The tax shield lowers the assessable income by an amount that we can deduct from it. These expenses are allowed as deductions are multiplied by a tax rate. This resultant figure is the tax shield for such tax liability. The tax rate and allowable expenses may vary from country to country. Also, the expenses are a bit different for individuals and business corporates. A tax shield calculator is simply an online tool for calculating this quantum of the tax shield. One pays tax to the government on their earnings. The tax liability will be more if nothing is allowed as a deduction from these earnings. Hence, this tax shield works as a shield against higher tax liability.
The formula for calculating tax shield is as follows:
Tax Shield = Deductible Expenses * Tax Rate
Tax Shield Calculator
How to Calculate using Calculator?
Enter the following two variables for calculating the tax shield:
Deductible Expenses – All the expenses which are allowed as deductions from the income for the purpose of calculating the ultimate tax liability are deductible expenses. These expenses include depreciation, donation/charity, interest on borrowings, medical expenses and insurance, rent, etc.
Tax Rate – Enter the tax rate applicable for assessing the tax liability. We multiply this rate by the deductible expenses to determine the amount that we reduce or are likely to save from the tax liability.
