Before and after tax return _ IPS examples, correct, first, return, before

ayodayo

Hi
I am really confused how to calculate it
In some examples to calculate before tax nominal return , we first have real after tax return, then we multiply it by inflation facor then take out tax effect
in some other examples , we first take after tax real return then take out the tax effect then add inflation effect
So what is the correct way? Should we take the tax effect first OR we should add inflation effect first
PLEASE help me if you can

DarienHacker

ANY ONE

ohai

Before tax return=after tax return/(1-T), t=tax rate

Colum

Do the tax adjustment first. Inflation is the same percentage after-tax as it is before-tax.
So don’t tax effect inflation.

Windjam

So let’s say we have a real return after-tax of 5% and we want to calculate the before tax real return, what do we do? Infl is 2% and tax is 30%.
Is is it (5+2)/(1-0.3) and then subtract inflation? Taxes are calculated on nominal returns. Can somebody confirm? Thanks

pimpineasy

I believe it is - : 1-( (1+ (.05/ 1-.3) (1+.02))= 9.28%. Hope I got all the brackets in the right places.

Viceroy

Aren’t taxes calculated on nominal returns?

former

i thought tax out flow happens in nominal terms
so if i have after tax real return of 5% i would add inflation then give effect for tax like Mik82 has done (5+2)/(1-.3).
Cheer!

krause2

Thanks for the confirmation!

jmh530

R = r/(1-t)
t=tax rate
r=annual liquidity needs (needs/port. value)
R=before tax real-required return
You can then either add or geometrically link (1 + R)(1 + inf) the inflation figure to get the nominal before tax return
Hope that helps.