Westover Mills reduced its taxes last year by $210 by increasing its interest expense by $1,000. Which one of the following terms is used to describe this tax savings?

Question

Quizplus · Accepted Answer

The tax savings resulting from an increase in interest expense is known as the interest tax shield. This occurs because interest is tax-deductible, so increasing interest expense reduces taxable income and therefore reduces taxes.

Westover Mills Reduced Its Taxes Last Year by $210 by Increasing