After-Tax Income

  

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

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Finance allah shmoop What is tax basis Well your basis

00:07

is your cost Your costs for assessing how much you

00:12

owe when the tax man coming you bought a thousand

00:16

shares of whatever dot com at twelve bucks a share

00:19

in its eye po and huzzah Three years later the

00:22

stock is at thirty You decide whatever dot com is

00:26

now passe because a kardashians said so it'll be over

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taken by whenever dot com and you want to sell

00:33

So you dio and you live in a thirty percent

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marginal tax blue state And that is your federal tax

00:39

rates in twenty percent But then you add in ten

00:41

percent for state taxes and whatever's left for obamacare and

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you pay about thirty percent tax on your gains Well

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you paid twelve grand to buy the stock and after

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the sale you took in thirty grand when you sold

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it for a gain of eighteen thousand dollars Your tax

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basis on those shares is twelve grand so you pay

01:04

thirty percent tax on the eighteen grand of gain or

01:08

fifty four hundred dollars to net from the sale of

01:11

thirty thousand dollars worth of stock How much Yeah twenty

01:15

Four thousand six hundred dollars He fancy math Had you

01:19

just gotten those shares free I'ii they were gifted to

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you and you had no tax basis or a tax

01:25

basis of zero dollars a share Well then your gain

01:29

would have been from zero to thirty grand or a

01:31

gain of thirty thousand dollars to then be taxed at

01:34

thirty percent or nine grand in taxes to net just

01:38

twenty one thousand dollars after the sale So having ah

01:41

high tax basis or at least being able teo point

01:45

toe one saves you money when the tax man coming

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and well that's pretty much it alright he's gone Now

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you can all come out Come on it's Okay it's 00:01:53.698 --> [endTime] safe

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