About the After-Tax Return Calculator
The return you see quoted for a fund or stock is a pre-tax number. In a taxable brokerage account, dividends are taxed every year — qualified dividends at the lower capital gains rates, non-qualified dividends and interest at your ordinary income rate — and price gains are taxed when you sell. This after-tax return calculator projects an investment year by year, taxes each year’s dividends, reinvests what is left, and optionally applies capital gains tax when you sell at the end, to show your true annual after-tax return.
It is built for investors comparing a taxable account with a tax-advantaged one, choosing between high-dividend and growth funds, or estimating how much of a portfolio’s return goes to taxes. The tax drag output is the gap between the pre-tax and after-tax annual returns; the chart shows how the two balances diverge over time.
Enter your own marginal rates, including state tax if it applies. The model assumes a constant price growth rate and dividend yield, dividends paid and taxed once a year and reinvested after tax, no selling before the end, and that reinvested dividends add to your cost basis. A one-year holding period is treated as short-term (taxed at your ordinary rate), since long-term treatment requires holding more than one year. It does not include the 3.8% net investment income tax unless you add it to the rates.
With the default inputs, the after-tax annual return is 6.98%. Change any value above to recalculate instantly.
How to use the after-tax return calculator
- 1Enter the amount invested and how many years you plan to hold it.
- 2Split the expected return into price growth and dividend yield.
- 3Enter the share of dividends that are qualified.
- 4Enter your ordinary, qualified dividend and capital gains tax rates.
- 5Choose whether you sell at the end, then compare the after-tax and pre-tax returns.
Formula and method
Each year the investment pays a dividend equal to its value times the yield. That dividend is taxed at a blended rate — the qualified share at the qualified dividend rate and the rest at your ordinary rate — and the remainder is reinvested, adding to both the value and the cost basis. Price growth is untaxed until you sell. The pre-tax comparison simply compounds at growth plus yield.
If you choose to sell at the end, long-term capital gains tax is charged on the ending value minus the basis (your original investment plus all reinvested after-tax dividends). The after-tax annual return is the compound annual growth rate from the initial investment to the after-tax ending value, and the tax drag is the pre-tax annual return minus the after-tax annual return.
- V
- Investment value
- g, y
- Annual price growth and dividend yield
- q
- Share of dividends that are qualified
- t_ord, t_qd, t_cg
- Ordinary, qualified dividend and long-term capital gains tax rates
- n
- Years held
Worked examples
Stock fund, 8% total return, 10 years, sold at the end
A 6% price gain plus a 2% dividend compounds to $215,892 tax-free. In a taxable account the dividends are taxed at a blended 16.8% each year and the $85,545 gain at 15% on sale, leaving $196,437 — a 6.98% annual return, about 1 point of tax drag.
Low-dividend growth fund held for 20 years without selling
Only the 1.5% qualified dividend is taxed each year (at 15%), so the after-tax return is 8.275% — just 0.225 points of drag — as long as the gains stay unrealized.
Bond fund paying 4.5% interest in a 35% bracket
All of the return is non-qualified income taxed at 35%, so 4.5% becomes 4.5% × 0.65 = 2.925% after tax. Over five years taxes total about $2,087.
Sold after exactly one year: short-term gain
Holding for one year is not "more than one year", so the $1,000 gain is short-term and taxed at the 24% ordinary rate ($240) instead of 15%. The after-tax return is 7.6%; waiting one more day would have qualified for the long-term rate.
Frequently asked questions
How do you calculate after-tax return?+
For income taxed every year, multiply the return by (1 − tax rate): a 4.5% interest yield in a 35% bracket earns 2.925% after tax. For mixed dividends and deferred gains, project year by year as this calculator does and compute the compound annual growth of the after-tax ending value.
What is tax drag?+
Tax drag is the reduction in annual return caused by taxes, measured in percentage points: the pre-tax return minus the after-tax return. Funds with high dividends, interest or frequent capital gain distributions have more tax drag in a taxable account.
How are qualified dividends taxed?+
Qualified dividends are taxed at the long-term capital gains rates of 0%, 15% or 20% depending on taxable income, instead of ordinary rates. To qualify you must generally hold the shares more than 60 days during the 121-day period around the ex-dividend date.
Why does holding without selling lower my taxes?+
Unrealized gains are not taxed until you sell, so the money that would have gone to tax keeps compounding. If you hold until death, US heirs generally receive a stepped-up basis and the deferred gain is never taxed as income.
Should I hold bonds in a taxable or tax-advantaged account?+
Because interest is taxed at ordinary rates every year, taxable bonds usually belong in IRAs or 401(k)s, while broad stock index funds with low, mostly qualified dividends are more tax-efficient in a taxable account. Municipal bonds are an exception for high earners.
Tax results are estimates based on published rules and simplified assumptions. They are not tax advice — check official guidance or a tax professional for your situation.