The break-even tax rate is the level of tax that neither encourages nor discourages investment. An equilibrium tax rate leaves investors indifferent, allowing brokers to focus on other aspects of the deal. It can also allow investors to focus on higher-risk investments without worrying about taxes. Brokers can advise on investments that create this tax situation.
The break-even tax rate has to do with the level of tax that would be incurred as part of a financial arrangement that would neither encourage nor discourage participation. An equilibrium tax rate tends to leave the investor somewhat indifferent. This creates a situation where the investor has to be lured into the transaction by some other means, rather than relying on tax breaks to seal the deal.
In a sense, an equilibrium tax rate has a limited degree of interest to an investor. Since the tax rate associated with the proposed deal will not tend to be a figure that the investor would find prohibitive, the question of incurring taxes associated with the opportunity is quickly set aside. This will provide the broker or dealer the opportunity to focus the investor’s attention on the other aspects of the transaction or series of transactions, pointing out the other merits of the deal.
A break-even tax rate can also serve the purpose of an investor who has little or no interest in gaining any form of tax advantage from investments. Without a real reason to dwell on the possibility of incurring a high level of tax, regardless of investment performance, it is possible to focus more on some investments that may contain a higher degree of risk. The limited projection of applicable tax rates, coupled with the possibility of higher returns, may create enough interest to cause an investor to take the risk and go with the investment.
All types of investors can take advantage of the opportunities that come with a break-even tax rate. Individuals, corporations, and other entities can find arrangements that work in a way that results in an equilibrium tax rate. Brokers are generally aware of any number of investments that can create this type of tax situation, and can readily advise potential investors on how to proceed.
Smart Assets.
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