Portfolio Tax Drag Calculator
Estimate how much annual turnover costs you in taxes each year and how that tax drag compounds into a smaller nest egg.
How it works
Tax drag = return × turnover × tax rate · Net return = return − drag · Loss = P(1+r)^t − P(1+net)^t
Every time you sell a winner in a taxable account you hand the government a slice of the gain now, instead of letting the whole amount keep compounding. Turnover measures how much of the portfolio you realize each year, and the drag is that turnover times the return times your tax rate. Even a modest drag compounds ruthlessly, which is why low-turnover index funds and buy-and-hold are so tax-efficient.
Worked example
On an 8% return with 50% turnover taxed at 20%, the drag is 0.08 × 0.50 × 0.20 = 0.8% a year, cutting the net return to 7.2%. On $200,000 over 20 years, that is roughly $105,000 less than if the gains had been fully deferred.
Frequently asked questions
What is turnover?
Turnover is the share of a portfolio bought and sold in a year. A 100% turnover means the whole portfolio was effectively replaced; an index fund might turn over just 3-5%.
Does tax drag apply in a retirement account?
No. Inside a traditional IRA, Roth, or 401(k) there is no tax on trades, so turnover carries no tax drag. It only bites in taxable brokerage accounts.
How do I reduce tax drag?
Hold low-turnover funds, avoid frequent trading, place high-turnover strategies inside tax-advantaged accounts, and harvest losses to offset realized gains.
Related calculators
Educational estimate using simplified assumptions — real returns, taxes and fees vary. Not financial advice.