Trading tax drag calculator

Enter your turnover, your rates, and your spread. This runs the traded portfolio year by year with basis tracked through every rotation, runs a held position beside it, and solves the annual outperformance the active strategy needs before it has done anything for you.

Worked example — What active trading has to beat buy and hold by, every year: 3.42%. At $100,000 starting capital, 100% annual turnover, 20 years, and a 8.00% held return, sustained for the whole horizon before the strategy has done anything for you.

Try:

Frequent trader, top bracket: The page's current default and worked example.

Starting portfolio$Holding periodyrPre-tax return of the held position%Annual turnover

Exact turnover%Short-term rate on realised gains%Long-term rate at the exit%Your expected edge (0 to skip)%

Advanced options 1

Spread plus commission, per side%

Current resultWhat the active strategy has to beat buy and hold by, every yearWhat the active strategy has to beat buy and hold by, every year: 3.42%. a year, before tax, just to finish level after tax

The active path is simulated year by year with basis tracked through every rotation. Tax and trading costs come out of the account, so the money that leaves stops compounding, which is exactly what the subtract-the-tax-rate shortcut misses. The held position pays once, at the end, on the whole gain.

It needs 11.42% pre-tax against the held position's 8.00%. Over 20 years the held position finishes at $392,877 after tax and the traded one at $261,914 on the same gross return, a gap of $130,962.

Both paths valued as if liquidated that year, with the deferred tax bill deducted at every point so the two lines are comparable.

Every row runs the same 8.00% pre-tax return, so the whole spread is tax timing and trading cost. Realised losses are given no credit in the simulation, which flatters the traded path. The residual unrealised gain is taxed at the exit rate you entered. Rates are taken as given: this page does not determine anyone's bracket.

After-tax return, held7.08%

After-tax return, traded4.93%

Of the requirement, spread and commission alone0.11%

Total tax paid, held$73,219

Total tax paid, traded$97,175

Spread and commission paid$3,546

Subtracting the tax rate from the return gives 5.04% for the traded path. The simulation gives 4.93%, because the tax leaves the account every year and the trading costs scale with turnover in the same direction.

How much alpha does active trading need, by turnover?

At 37% short-term and 20% long-term rates over 20 years, here is the pre-tax outperformance active trading needs at each turnover level.

Required pre-tax outperformance by annual turnover
Annual turnover	Required outperformance	After-tax finish, traded
0%	0.00% a year	$392,877
25%	2.12% a year	$292,979
50%	2.83% a year	$274,385
75%	3.19% a year	$266,581
100%	3.42% a year	$261,914

Required outperformance at different tax brackets

At 100% annual turnover, here is the same hurdle at real IRS bracket pairs: this is not just a top-bracket problem.

Required outperformance at 100% turnover, by bracket pair
Short-term / long-term rate	Required outperformance
37% / 20%	3.42% a year
32% / 15%	2.94% a year
24% / 15%	1.78% a year

What this simulation assumes

Every rate is an input. This page holds no bracket table and makes no claim about any jurisdiction's law.

Returns are a constant annual rate rather than a path, so this says nothing about sequence risk.
Realised losses are given no credit, which flatters the traded path.
The residual unrealised gain is taxed at the exit rate you entered, assuming the last rotation qualifies for it.
Turnover means the fraction of the book replaced net across the year, capped at 100%: a strategy that trades the same dollars many times over does not multiply this figure past that cap.

The next question after this one

Trade expectancy calculatorCalculatorThe pre-tax edge that has to clear the hurdle this page computed, measured from your own win rate and payoff.Open next

What Pro adds here

Return paths rather than a constant rate, loss-offset credit inside the simulation, and per-strategy turnover profiles are Pro features. The launch list sends one email at launch.