Tax Alpha Insider

Tax Alpha Insider

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Tax Alpha Insider
Tax Alpha Insider
Would you rather pay $1 in tax this year or next?

Would you rather pay $1 in tax this year or next?

Why isn't discounting common in investment tax analysis?

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Brent Sullivan
Jul 06, 2025
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Tax Alpha Insider
Tax Alpha Insider
Would you rather pay $1 in tax this year or next?
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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.

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