Finance Tools
Investment Tax Drag Calculator
Estimate investment tax drag and see how taxes reduce your pre-tax return to an after-tax return over a year.
Investment Tax Drag Calculator
Investment tax drag is the reduction in your investment return due to taxes. This calculator estimates your after-tax return and the percentage/dollar impact of taxes based on an effective tax rate.
Results
After-Tax Return: 6.00%
Tax Drag (return reduction): 2.00%
Annual estimates (based on investment amount):
Pre-Tax Profit: $8,000
After-Tax Profit: $6,000
Estimated Tax Paid: $2,000
Dollar Drag (same as estimated tax impact on profit): $2,000
Inputs used: pre-tax return 8.00%, effective tax rate 25.00%. This is an estimate for planning.
How to use
- Enter your expected annual return before taxes.
- Enter an estimated effective tax rate on investment returns.
- Optionally enter an investment amount to see dollar impact.
- Review after-tax return and tax drag.
FAQ
What is tax drag?
Tax drag is the reduction in your investment return caused by taxes. Even if your portfolio earns the same pre-tax return, higher taxes can reduce your after-tax performance.
What tax rate should I use?
Use an estimated effective rate that reflects your situation (dividends, capital gains, account type, and local rules). You can adjust the rate to compare scenarios.
Does this include fees or inflation?
No. This calculator isolates tax impact. Fees and inflation can further reduce real after-tax returns.
How to use this investment tax drag calculator
- Enter your expected pre-tax annual return (%).
- Enter your effective tax rate on investment returns (%).
- Optionally enter an investment amount to estimate the dollar impact.
- Review after-tax return and estimated tax drag.
Example
If pre-tax return is 8% and effective tax rate is 25%, after-tax return is 6% and tax drag is 2%. On $100,000 invested, drag is $2,000 per year.
- After-tax return = 8.00% × (1 − 0.25) = 6.00%
- Tax drag = 8.00% − 6.00% = 2.00%
- Dollar drag = $100,000 × 0.02 = $2,000
More tools in Finance Tools
- Before vs After Tax Investment Return Calculator
Compare before-tax vs after-tax investment returns to estimate how taxes reduce your return and take-home profit.
- ROI Calculator
Calculate return on investment (ROI) based on your initial investment and final value.
- Savings Goal Calculator
See how long it will take to reach a savings goal based on your current savings, monthly contributions, and expected annual growth rate.
- Investment Income Tax Calculator
Calculate estimated tax on investment income such as dividends, interest, and distributions to see your after-tax income.