Value of Tax Deferral Estimator

There are two benefits gained by deferring your capital gains tax:

  1. The ability to invest the deferred taxes for potential growth
  2. Eventually pay the tax with cheaper dollars, which is in effect a tax reduction

The Value of Tax Deferral Estimator is a simple tool to illustrate these two benefits. While it of course cannot determine or predict investment results, and should only be used to generate hypothetical scenarios, it is very useful to illustrate how a long-term investing approach assists asset appreciation assuming even conservative rates of return.

The Tax Deferral Estimator provides hypothetical investment scenarios over a 30-year time frame. To use it, in the blue cells enter your hypothetical data including starting balance, annualized after-tax rate of return, and inflation rate.

The results of your hypothetical investment scenario are shown in the red cells, including the account balance at the end of the investment time frame and the value in today’s dollars of your starting balance resulting from inflation.

You can also use the Value of Tax Deferral Estimator to get a sense of how much money you would need to invest now for growth to pay your future tax liability. To do this, simply change your starting balance multiple times until the ending investment balance equals the amount you think might be the tax liability at the end of the time frame.

Again, this is a simple tool and should only be used to illustrate hypothetical scenarios.

Value of Tax Deferral Estimator Screenshot

The Value of Tax Deferral Screenshot
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