After-tax return

The return that remains once the tax on it has been paid. The only version of a return an investor can actually spend.

Example

A 5.00% yield taxed at 40% is a 3.00% after-tax return, so a tax-free 3.20% beats it.

Important

Published returns and yields are pre-tax because the publisher cannot know your circumstances - so the only comparable number is one you have to work out yourself.

Related terms

• Net return — What actually reached the investor after fees and costs were deducted. Net of tax as well, if stated.
• Ordinary income — Money an investment pays you while you still own it - interest, dividends, rent, coupons - typically taxed in the year it is received.
• Tax drag — The reduction in compounding caused by paying tax earlier than necessary - the tax itself plus everything that tax would have earned had it stayed invested.

Lessons that explain it

• The nominal safety that loses money anyway — The balance cannot fall, and that is exactly why the real risk in this class is invisible. Inflation reduces what the money buys, and the tax is levied on the nominal interest rather than on what you actually gained. (13 min)
• Nothing arrives while you wait, and the wrapper sets the tax — Large declines with no income to cushion them, a running charge on an asset that pays nothing, a roll cost that hides inside a price - and in the United States, three wrappers around the same metal taxed three different ways. (12 min)
• Total loss is an outcome here, not a tail — Four separate routes lead to zero, none of them exotic. Then the volatility arithmetic, the costs nobody totals, and a tax treatment that can leave a bill in currency against a position that has already fallen. (13 min)
• The return is the earnings difference, not the certificate — A self-investment pays off through higher earnings, better opportunities or more working years. Measure it as a difference over time, after tax, against what it cost. (11 min)
• Three sources: employer money, tax saved, and compounding left alone — Returns inside a retirement account come from the investments, plus two things outside the market: employer contributions and the tax that is not taken each year. (11 min)
• Why two identical returns are taxed differently — Most tax systems care less about how much you made than about what kind of money it was and when you took it. Same return, different asset, different amount kept. (13 min)

All 578 terms in the Investing glossary