Taxation on Business and Investment Decisions

  Considering investment which appears to other tax benefit, provide a clear idea of the degree of risk involved in investment (Pandy 1993). Each prospective investor has to decide therefore, whether the return from investment coupled with the tax benefits are favorable in relation to the risk involved (Lucy 1998). However, there is no way in which all the various investment that may offer tax benefits can be classified in to any precisely determined group or degree of risk. This is because as Mbachu (1996) pointed out, so much depends on the particular circumstances like secession in general on the business, inflation changes in market interest rate etc.

This investment could be said to be low risk or high risk investment, high risk investment with tax benefits are the tax shelter investment tax shelter investment takes advantage of provision in the income tax legislation. One of the risk associate with tax sheltering the question of honesty of the tax manager and their efficiency through rookie “tax shelters are really doubly advantageous first they provide income for investment which generate much income.

 Every time a firm is making an investment decision, it is also making a financing decision. During a company is lifetime, it is bound to seek external finance for expansion purpose the alter nature open to the company include issuing bonds. Preferred stock issuing common stock, in terms of tax bond issuance 1.e debt financing will prove more advantageous because its instincts is tax deductible. This given tax shield and eventually reduces the amount of tax ability. (Pandy 1993). However, while interest on bonds have to be paid, it the or dining shareholders are to retain control of the company, divided on preferred stock do not have to be declined and paid. Consistently, the increased risk associated with the insurance of bonds may outweigh the tax advantage (Salmonson, 1981).