After-Tax Return
Tax rates are another factor when calculating investor returns. An after-tax return removes the money that will be paid in taxes before the return is calculated.
Short-term capital gains and interest are taxed at the taxpayer’s ordinary rate, whereas long-term capital gains are taxed at a lower rate (currently between 0 and 15%). Qualified dividends are also taxed at a lower rate. Moreover, to qualify as a long-term capital gain or loss, an investment must be held for more than one year. According to the IRS, the holding period clock begins the day after the investment was purchased and ends on the day the investment was sold.
Example Question
Stan purchased 100 shares of a stock for $20 and sold them for