Uses of tax-shields present the main basis of Capital structure theory in finance. Whether companies use leverage efficiently to increase overall tax benefits presents a challenge for every financial manager of the company. This study uses the threshold approach to determine the non-linear impact of interest tax shield on companies' levels of corporate leverage. The trade-off theory framework of Capital structure states that companies should tend to use debt as long as the benefits of tax benefits exceed the bankruptcy costs. This study uses that framework to determine if companies from Serbia tend to significantly adjust their leverage levels once a certain level of tax shield is reached. The study includes the analysis of 25 listed companies on the Serbian stock exchange from 2010 to 2024. The study includes the variables of total debt as the dependent variable, while tax shield, non-tax shield, liquidity, profitability, tangibility, GDP, inflation, number of board members, and board member diversity present independent variables. The level of tax shield is used as a threshold variable as the authors implore the panel threshold regression approach. The results indicate that financial managers should prioritize tax planning and compliance in order to minimize the company's cost of capital and the negative effects of tax liabilities.

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