When considering a stock’s return, it is important to remember to factor in taxes. This is because taxes can have a significant impact on the overall return that an investor realizes on their investment.
For example, let’s say that an investor buys a stock for $100 and it goes up to $110 over the course of a year. If the investor sells the stock at this point, they will realize a $10 capital gain. However, if the investor is in the 25% tax bracket, they will owe $2.50 in capital gains tax, leaving them with a net gain of $7.50.
Similarly, if a stock goes down in value, the investor will be able to deduct their losses on their taxes. For example, if an investor bought a stock for $100 and it went down to $90 over the course of a year, they would have a $10 capital loss. This loss could be used to offset other capital gains that the investor has realized, or it could be used to lower their overall tax bill.
Therefore, it is important to factor in taxes when considering a stock’s return, as they can have a significant impact on the investor’s bottom line.