To compute your after tax yield on an investment, you'll need to your tax bracket (marginal tax rate) and the stated, pre-tax yield of your investment. The formula for determining the pre-tax yield you'll need to equal a particular after-tax yield is:
|After-tax Yield = Taxable Interest Rate * (1.00 - Marginal Tax Rate)|
To further illustrate, here are a few after-tax equivalents for pre-tax yields. As you can see, the higher your tax bracket, the higher the pre-tax yield needs to be in order to return your desired post-tax yield.
To use the table, locate your marginal tax rate in the first column, and read across that line and locate the pre-tax yield. The number in the top of that column is your after-tax yield.
|Sample After-Tax and Pre-Tax Yield Comparison|
|Tax rate (%)||After-tax yield (%):||2.0||3.0||4.0||5.0||6.0||7.0||8.0||10.0||12.0|
|Pre-tax yield (%):||EQUALS|