Comparing after-tax returns to pretax returns
can also be eye-opening.
This article examines the historical trend in community bank returns on equity (ROE) over the last 10 years and highlights the gap between current and historical pretax returns
Researchers in both public finance and financial economics have studied whether tax rules have a pronounced effect on asset pricing and the pretax returns
on various financial assets.
For this reason, I model the after-tax returns and discuss the expected ordering of pretax returns
for each of these three potential investors.
Brennan's (1970) model of these tax effects indicates that risk-adjusted pretax returns
should be positively correlated to dividend yields.
The result is that an investor's aftertax returns can be significantly lower than the fund's advertised pretax returns
Lyon advocates reducing or eliminating tax preferences that do not produce social returns in excess of their pretax returns
as the most direct alternative to the corporate AMT for improving efficiency.
long-term capital gains, after-tax returns compared to pretax returns
, unrealized gain in a mutual fund, and the use of tax lot accounting to minimize capital gains distributions (see below).
As Figure 2 shows, production businesses can deliver from 45 percent to 135 percent pretax returns
on equity, depending upon the leverage ratio of the company and the all-in cost of production.
Planning suggestion: Corporations subject to the AMT may want to encourage dividend-paying companies in which they own 20% or more of the outstanding shares to sell their tax-exempt securities and invest in fully taxable securities that produce higher pretax returns
The Garland results found that the typical investor received only 41% of the preexpense, pretax returns
of the index.