Effective Tax Rate is the real tax rate that your company is
paying - as opposed to its declared (marginal) tax rate. It is calculated by
dividing your tax expense by your pre-tax profit (EBT). Depending on how
efficient your tax optimization system is, your effective rate can be much
lower than your marginal rate, saving you money (sometimes, a lot of money).
Therefore, it is very important to develop and deploy a
highly efficient tax optimization system that will minimize your taxes and at
the same time keep you out of legal trouble (the latter is never worth it).
You must also keep in mind that you must add your spending
on your tax optimization system to your total tax expense to arrive at correct
value of your Effective Tax Rate.
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