Investment Tax Drag Calculator
Two portfolios can post the same pre-tax return and still finish with different real outcomes if one realizes taxable income every year. This calculator models a simple annual tax drag: how much of each year's return is taxable, what tax rate applies, and how that drag compounds over time.
Modeled after-tax annual return
6.44%
20 years
After-tax ending value
$637,093
No-tax ending value: $685,430
Estimated taxes paid
$30,182
Tax drag versus no-tax case
$48,337
Simple planning model only. It treats the taxable share of each year's return as taxed in that year, ignores tax lots, loss harvesting, qualified dividend rules, state taxes, and deferred unrealized gains.
Use it as a taxable-account stress test
The calculator does not try to reproduce a tax return. It asks a narrower planning question: if a portion of annual return is realized or distributed and taxed each year, how much compounding is left compared with a no-tax case? That makes the output useful for comparing high-turnover funds, income-heavy strategies, and taxable accounts against lower-turnover alternatives.
Separate tax drag from market risk
Tax drag is not the same as a bad investment. A high-return strategy can still beat a low-return strategy after tax. But the tax bill must be part of the hurdle rate, especially when a page headline only shows the pre-tax return. Use the result with the real-return and fee-drag tools before treating a nominal return as spendable wealth.
What this model intentionally leaves out
Real tax outcomes depend on account type, holding period, dividend character, tax lots, harvesting, state rules, and whether gains are realized or deferred. This tool is a planning estimate, not tax advice, and it should be replaced by professional tax modeling before any major account or fund decision.
FAQ
What does taxable share of annual return mean?
It is the portion of the year's investment return that you assume is realized or distributed and taxed in that year. A low-turnover index fund might have a lower annual taxable share than a high-turnover strategy, but the right input depends on the actual account and investment.
Why compare against a no-tax ending value?
The no-tax case is a benchmark, not a prediction. It isolates the compounding cost of annual taxation so you can see the gap created by taxes before considering other frictions such as fees, inflation, and market volatility.
Does this include deferred capital gains taxes?
No. The model taxes only the annual taxable share you enter. It does not estimate a future liquidation tax bill on unrealized gains, so it should not be used as a complete tax plan.
Evidence to read next
Use the calculator output with source-backed research, not as a standalone signal.
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