Would you rather pay $1 in tax this year or next?
Why isn't discounting common in investment tax analysis?
Assume tax rates stay fixed1, and I owe $1 in taxes in ten years.
Today, I could invest $1 in something2 compounding at the risk-free rate (~4%), and ten years later have ~$1.50. After paying my $1 tax bill, I get to keep the extra $0.50.
This is the time value of tax deferral in a nutshell3.
To put it simply: a tax deferred is an interest-free loan from the U.S. Treasury Department, with a maturity equal to the number of years of deferral.
Jack Bogle (1997) - Mutual Funds: Parallaxes and Taxes
The present-valuing of future gains and losses is common in finance.
It’s first-semester corporate finance stuff, a fair chunk of the CFA curriculum, and much of financial mathematics (options pricing, Black-Scholes, etc.).
And yet, it is very rare for managers to mention the time value of money in their endless, repetitive “What is tax-loss harvesting?” blog posts and journal articles.
For example, here’s Vanguard illustrating the value of tax-loss harvesting in nominal dollars.