Imagine that paying your taxes is like a medieval battle. The IRS fires arrows at you, the tries to dump hot oil on your head and get you to fall into a pit with feces-tipped spikes. Now imagine that the way to avoid all this is a giant shield. Your tax shield.
Of course, in real life, it doesn't get that dramatic. The arrows and pitch and spiky pits are just the tax code. And your shield, perhaps ironically, is also the tax code. And a smart accountant.
The goal of a tax shield is to lower the amount of tax you pay by getting every possible deduction you can. Move your company's headquarters to a new state with a lower tax rate. Invest in alternative energy because it offers a tax break. Take on as much debt as possible because you can deduct interest payments on your taxes. Do what you can to protect yourself against the slings and arrows of outrageous taxes...or something like that.
Related or Semi-related Video
Finance: What is Tax Basis?8 Views
Finance allah shmoop What is tax basis Well your basis
is your cost Your costs for assessing how much you
owe when the tax man coming you bought a thousand
shares of whatever dot com at twelve bucks a share
in its eye po and huzzah Three years later the
stock is at thirty You decide whatever dot com is
now passe because a kardashians said so it'll be over
taken by whenever dot com and you want to sell
So you dio and you live in a thirty percent
marginal tax blue state And that is your federal tax
rates in twenty percent But then you add in ten
percent for state taxes and whatever's left for obamacare and
you pay about thirty percent tax on your gains Well
you paid twelve grand to buy the stock and after
the sale you took in thirty grand when you sold
it for a gain of eighteen thousand dollars Your tax
basis on those shares is twelve grand so you pay
thirty percent tax on the eighteen grand of gain or
fifty four hundred dollars to net from the sale of
thirty thousand dollars worth of stock How much Yeah twenty
Four thousand six hundred dollars He fancy math Had you
just gotten those shares free I'ii they were gifted to
you and you had no tax basis or a tax
basis of zero dollars a share Well then your gain
would have been from zero to thirty grand or a
gain of thirty thousand dollars to then be taxed at
thirty percent or nine grand in taxes to net just
twenty one thousand dollars after the sale So having ah
high tax basis or at least being able teo point
toe one saves you money when the tax man coming
and well that's pretty much it alright he's gone Now
you can all come out Come on it's Okay it's 00:01:53.698 --> [endTime] safe
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