What is an ‘After-Tax Return’
An after-tax return is any profit made on an investment after subtracting the amount due for taxes. Many businesses and high-income investors will use after-tax return to determine their actual earnings. An after-tax return may be expressed nominally or as a ratio.
BREAKING DOWN ‘After-Tax Return’
After-tax returns break down performance data into “real-life” form for individual investors. Those investors in the highest tax bracket will use municipals and high-yield stock to increase their after-tax returns. Capital gains from short hold investments due to frequent trading are subject to high tax rates.
Businesses and high tax bracket investors use after-tax return to determine their actual profit. As an example, say an investor, paying taxes in the 30 percent bracket, held a municipal bond that earned $100 interest. When they deduct the $30 tax due on income from the investment, their actual earning are only $70.
High tax bracket investors don’t like it when their profits are bled off in taxes. Different tax rates for gains and losses means that before tax and after tax profitability may vary widely for these investors. These investors will forego investments with higher before tax returns in favor of investments…