You bought a corporate bond that was fully taxable. You spend a hundred grand on the 7% coupon bond, which pays you $3,500 twice a year, or $7,000 annually. Unfortunately, that $7,000 gets taxed at the ordinary income rate, and because you had a successful plumbing and parts distribution business, you have a few hundred grand a year coming in your retirement.
So that $7,000, on top of the other money you earn, gets taxed at roughly 50%. Your after-tax income is not, in fact, the notional $7,000 in total interest payments you're receiving for renting your cash to that corporate issuer. Instead, you pay your tax and you net $3,500 a year, not $7,000.
Basically, one of the semi-annual bond payments goes directly to the government. The good news: you keep the other half.
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Finance: What is Tax Basis?8 Views
Finance allah shmoop What is tax basis Well your basis
is your cost Your costs for assessing how much you
owe when the tax man coming you bought a thousand
shares of whatever dot com at twelve bucks a share
in its eye po and huzzah Three years later the
stock is at thirty You decide whatever dot com is
now passe because a kardashians said so it'll be over
taken by whenever dot com and you want to sell
So you dio and you live in a thirty percent
marginal tax blue state And that is your federal tax
rates in twenty percent But then you add in ten
percent for state taxes and whatever's left for obamacare and
you pay about thirty percent tax on your gains Well
you paid twelve grand to buy the stock and after
the sale you took in thirty grand when you sold
it for a gain of eighteen thousand dollars Your tax
basis on those shares is twelve grand so you pay
thirty percent tax on the eighteen grand of gain or
fifty four hundred dollars to net from the sale of
thirty thousand dollars worth of stock How much Yeah twenty
Four thousand six hundred dollars He fancy math Had you
just gotten those shares free I'ii they were gifted to
you and you had no tax basis or a tax
basis of zero dollars a share Well then your gain
would have been from zero to thirty grand or a
gain of thirty thousand dollars to then be taxed at
thirty percent or nine grand in taxes to net just
twenty one thousand dollars after the sale So having ah
high tax basis or at least being able teo point
toe one saves you money when the tax man coming
and well that's pretty much it alright he's gone Now
you can all come out Come on it's Okay it's 00:01:53.698 --> [endTime] safe
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What is After Tax Yield? After tax yield is simply how much an investment makes (or yields) after taxes have been paid. This term refers to bond yi...