Tax shield
Okay, so let's imagine you have 10 candies and your friend wants to borrow one of your candies. Your friend promises to give you back the candy later, and to say thank you, they'll also give you a piece of their candy.
Now, let's say that instead of candies, we're talking about money that you or your parents have made. The government wants to borrow some of your money to use for important things like building roads, schools, and hospitals. But don't worry, just like your friend promised to give you back your candy, the government promises to give you back your money later, plus a little more in the form of interest.
Now here's where "tax shield" comes in. Sometimes, when you or your parents make money, the government will tax a portion of that money. This means that they will take some of the money away and keep it for themselves, just like how sometimes your parents take a small portion of your candy bar for themselves.
However, there is a way to use the fact that the government is taking some of your money to your advantage. This is called a "tax shield." A tax shield is a way of reducing the amount of tax you or your parents have to pay by using money that has been borrowed and must be paid back later, just like how you borrowed a candy to your friend earlier.
So if you or your parents borrow money and use it to make more money, the government will only tax the profit (the amount of money you make after you pay back the borrowed money). This is because the borrowed money is seen as a cost, just like how you spent one of your candies to lend to your friend. So if you or your parents earn $100 using borrowed money, but they have to pay back $50, the government will only tax the $50 profit and not the full $100 earned. This means that you or your parents can keep more of the money they earned!
In short, tax shield is like borrowing a candy from a friend and using it to get even more candy. By doing this, you can keep more of the candy you get to keep, just as you can keep more money by using borrowed money to make even more money.
Now, let's say that instead of candies, we're talking about money that you or your parents have made. The government wants to borrow some of your money to use for important things like building roads, schools, and hospitals. But don't worry, just like your friend promised to give you back your candy, the government promises to give you back your money later, plus a little more in the form of interest.
Now here's where "tax shield" comes in. Sometimes, when you or your parents make money, the government will tax a portion of that money. This means that they will take some of the money away and keep it for themselves, just like how sometimes your parents take a small portion of your candy bar for themselves.
However, there is a way to use the fact that the government is taking some of your money to your advantage. This is called a "tax shield." A tax shield is a way of reducing the amount of tax you or your parents have to pay by using money that has been borrowed and must be paid back later, just like how you borrowed a candy to your friend earlier.
So if you or your parents borrow money and use it to make more money, the government will only tax the profit (the amount of money you make after you pay back the borrowed money). This is because the borrowed money is seen as a cost, just like how you spent one of your candies to lend to your friend. So if you or your parents earn $100 using borrowed money, but they have to pay back $50, the government will only tax the $50 profit and not the full $100 earned. This means that you or your parents can keep more of the money they earned!
In short, tax shield is like borrowing a candy from a friend and using it to get even more candy. By doing this, you can keep more of the candy you get to keep, just as you can keep more money by using borrowed money to make even more money.
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