Portfolio Tax Drag & Loss Harvesting Simulator

1. Portfolio Inputs

Current Portfolio Value $500,000

Annual Contribution $25,000

Investment Horizon 30 Years

2. Tax Environment

State of Residence

State Tax Rate 13.3%

Federal Income Tax Bracket

3. Current Asset Allocation

Total: 100%

Tax-Efficient Index ETFs 50%

Passive funds with minimal turnover (e.g. VOO, VTI)

Active Mutual Funds 30%

High-turnover funds triggering frequent capital gains distributions

Option-Income ETFs / High Yield 20%

Yield traps distributing ordinary income contracts (e.g. YieldMax)

Optimize Your Strategy

1. Shift to Index ETFs

Converts active funds and option-yield traps into tax-efficient index ETFs.

2. Asset Location

Moves high-tax assets (Mutual Funds, Option ETFs) into tax-deferred retirement accounts.

3. Direct Indexing (TLH)

Holds individual stocks in index and systematically harvests losses, adding 0.85% in Tax Alpha.

Uncle Sam's Cut

$0

Total compound growth lost strictly to taxes under your current strategy.

Annualized Tax Drag

0.0%

Equivalent annual fee rate eaten up by capital gains and dividend taxes.

Wealth Rescued

$0

Additional money kept in your pocket by activating your tax optimizations.

Compounded Portfolio Growth Projection

Understanding the Tax Alpha Strategies

1 Asset Location Strategy

Dividends and capital gain distributions are taxable in the year paid. By relocating assets that generate high dividend yields or ordinary income distributions (like high-yield bond funds or option-income ETFs) into tax-advantaged accounts (Traditional/Roth IRAs), you completely bypass the annual tax friction, allowing the gross distributions to compound with 100% efficiency.

⚠️ Traditional IRA / 401(k) Warning: Shifting assets to Traditional tax-deferred plans converts what would have been lower-taxed long-term capital gains and qualified dividends into ordinary income tax rates upon withdrawal. Therefore, relocation is highly effective for high-income yielding assets (like options ETFs or bond interest), but standard equity funds are often better suited for taxable accounts or Roth IRAs where growth exits completely tax-free.

2 Low-Turnover Index ETFs

Active mutual fund managers constantly trade stocks, creating realized capital gains that must, by law, be distributed to fund shareholders at year-end. Broad-market index ETFs (like VOO or VTI) buy and hold the entire market with ultra-low turnover, and use the creation/redemption mechanism to purge low-basis shares tax-free, virtually eliminating capital gains distributions.

3 Direct Indexing & TLH

Direct indexing replaces a broad ETF by purchasing the individual underlying stocks. When specific stocks drop (even during a positive market year), proprietary software sells those positions to harvest the capital loss, reinvests in a highly correlated alternative, and maintains index tracking. The harvested losses offset capital gains elsewhere in your financial life, yielding **0.50% to 1.50% of annual "Tax Alpha."**

Calculation Assumptions & Footnotes

Current 2026 Tax Laws — Subject to Change

Tax Law Volatility Warning: Tax laws are highly subject to political, economic, and regulatory changes over time. The calculations, rates, and brackets modeled in this simulator are based strictly on the U.S. federal and state tax laws in effect for the 2026 calendar year. Future tax codes, ordinary brackets, capital gains exclusions, and retirement withdrawal rules may change significantly.
Core Market Returns: All asset classes are simulated assuming a baseline gross pre-tax return of 9.50% per annum. This ensures that the wealth discrepancies displayed are solely the result of tax drag and tax-loss harvesting efficiencies, not relative fund performance.
Tax-Efficient Index ETFs: Modeled with an annual dividend yield of 1.50% (100% qualified, taxed at Federal Capital Gains rates + State tax rate) and a capital gains turnover realization rate of 2.0% per annum (meaning 2% of capital appreciation is taxed annually, while 98% compounds tax-deferred).
Active Mutual Funds: Modeled with an annual dividend yield of 2.0% (80% qualified, 20% ordinary income) and a high internal portfolio turnover rate resulting in 40.0% of annual capital growth being realized and taxed each year at long-term capital gains rates.
Option-Income/High-Yield ETFs: Modeled as high-yield vehicles distributing an annual yield of 15.0% (treated entirely as ordinary income, taxed annually at ordinary Federal + State rates), with a principal capital decay rate of -5.5% per annum, preserving the baseline 9.5% gross return (15.0% - 5.5% = 9.5%).
State Tax Prefills: Prefills use realistic standard high brackets: California (13.3%), New York (10.9%), Illinois (4.95%), Texas/Florida (0%). Realized state rates are treated as ordinary income or LTCG additions based on filing types.
Federal Capital Gains Rates: Federal LTCG tax rates are automatically mapped based on the selected Federal bracket: Brackets below 22% receive a 0% capital gains rate; 22% to 35% receive 15%; the 37% bracket receives a 20% rate.
Direct Indexing Tax Alpha: Enabling Direct Indexing (Tax-Loss Harvesting) adds an annualized +0.85% compound return boost to the after-tax growth rate of the taxable portion of the portfolio. This assumes the investor has outside capital gains or sufficient ordinary income to offset harvested losses (up to $3,000 annually).

Financial & Legal Disclaimer

Accreting.com is an educational platform. The Portfolio Tax Drag Analyzer is an illustrative modeling tool designed to demonstrate the potential mathematical impact of investment taxes and basic tax-optimization strategies. This simulator uses simplified projections, historical tax frameworks, and generic market assumptions.

These calculations are estimates and do not constitute personal financial, investment, legal, or tax advice. Actual tax outcomes depend entirely on individual circumstances, filing types, specific fund choices, state and local regulations, and potential changes to tax laws. We do not guarantee the accuracy, timeliness, or future replication of these models. Users should consult a qualified Certified Public Accountant (CPA) or licensed financial advisor before making any transaction or investment decisions.