How to calculate the tax shield

A Tax Shield is an allowable deduction from taxable income that results in a reduction of taxes owed.Tax shield can be claimed for a charitable contribution, medical expenditure etc. for individuals .Tax rate is primarily used for interest expense and depreciation expense in the case of a company.

Tax Shield Formula

Tax Shield = Sum of Tax-Deductible Expenses × Tax rate

Example :

Google company has an annual depreciation of $10,000 and the rate of tax is set at 20%, the tax savings for the period is $2000.