After-Tax Basis

The basis for weighing the performance of two investments against each other after taxes have been factored into the equation.

After-tax basis calculations are often used to compare yields between taxable bonds, such as corporate securities, and tax-exempt municipal bonds. The taxable equivalent yield is the yield an investor would have to earn on a taxable investment in order to match the tax-exempt return of a municipal bond. Variations of the taxable equivalent yield formula can be used to compare government bond yields, which are taxable at the federal level but not subject to state taxes, with municipal and corporate securities.


Investment dictionary. . 2012.

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