When it comes to minimizing tax liability, the capital structure of the company plays an important role. The key points to consider when deciding on the capital structure for tax minimization are as follows:
1. Current Tax Rate: The current tax rate should be taken into account, as the taxes are affected by the type of capital structure.
2. Sources of Funds: The sources of funds also play a crucial role in determining the appropriate capital structure for minimizing tax liability. This includes the value and type of debt taken on, the company’s equity and other sources.
3. Tax Deductible Expenses: Tax deductible expenses should be taken into account when deciding on the capital structure of the company. This includes the cost of debt, business expenses, investment expenses, etc.
4. Risk Allocation: Risk allocation should also be taken into account in deciding the capital structure. This includes the amount of risk associated with each form of financing, and how the business plans to manage that risk.
5. Timing: Timing is important when it comes to establishing the ideal capital structure. This includes when specific funds are needed, and which financing options best align with those needs.
These points should be given due consideration and taken into account when determining the capital structure of a company to minimize tax liability.