Investment Tax Drag Calculator

1. Return components

Total nominal return (before tax) each year:
Price return: r_p
Dividend yield: y_d
Interest yield: y_i

Tax-free growth rate:
r_free = r_p + y_d + y_i
        

2. Tax on income and gains

Tax rates:
t_d = tax rate on dividends
t_i = tax rate on interest
t_g = tax rate on realized gains

Realization rate of gains:
q = fraction of price return realized each year

Each year:
Dividend income = B × y_d
Interest income = B × y_i
Realized gains = B × r_p × q

Tax paid:
Tax_div = Dividend income × t_d
Tax_int = Interest income × t_i
Tax_gains = Realized gains × t_g
        

3. After-tax growth

After-tax income:
Div_after = Dividend income − Tax_div
Int_after = Interest income − Tax_int
Gains_after = Price return × B − Tax_gains (on realized portion)

Approximate after-tax growth rate:
r_after ≈ r_p × (1 − t_g × q) + y_d × (1 − t_d) + y_i × (1 − t_i)

Balance update each year:
B_t = B_{t−1} × (1 + r_after)
        

The tool simulates both tax-free and after-tax balances over your chosen horizon.

Tax drag compounds over time. Even modest tax rates can create large differences in ending balances over long horizons.

Worked example

Imagine a portfolio with 4% price return, 2% dividends, and 1% interest, with 15% tax on dividends and gains and 24% on interest. Over 30 years, the after-tax balance may be significantly lower than the tax-free benchmark.

Using the results

You can explore how shifting toward tax-efficient funds, using tax-advantaged accounts, or changing realization rates affects tax drag. Always consider your full tax situation and local rules.