How to Compare Two Portfolios After Tax

Two brokerage charts can show the same return while the accounts contain different tax lots, carryforwards, and embedded gains. That does not prove one investor is wealthier after tax. It means the dashboard is missing information needed for the comparison.

A credible after-tax analysis measures both portfolios on the same date under the same assumptions.

Start With the Same Pre-Tax Inputs

Hold constant:

• starting value and contribution dates;
• withdrawals and dividends;
• securities and allocation;
• transaction and management fees;
• the return-measurement method;
• the comparison period.

If those inputs differ, tax strategy is not the only cause of the result.

Inventory Current Tax Attributes

For each portfolio, record:

• adjusted basis and holding period by lot;
• unrealized short- and long-term gains or losses;
• realized gains and losses for the year;
• capital-loss carryforwards;
• cash reserved for known tax;
• charitable or estate disposition plans.

Market value minus an estimated liquidation tax can be useful, but it is not a universal definition of spendable wealth. An investor may sell gradually, donate shares, move states, or hold assets until death under current basis rules.

Use the Same Liquidation Assumption

One common comparison assumes both portfolios are fully sold on the measurement date. Apply the same federal and state rules, income projection, NIIT calculation, lot identification, and carryforwards to both.

Another comparison assumes a fixed annual withdrawal. That model needs sale sequencing, changing brackets, future returns, and the tax on remaining assets at the end.

Do not compare one portfolio before liquidation tax with another after tax. That is how fictional “15–20% larger” outcomes appear without evidence.

Separate Current Deferral From Permanent Savings

If Portfolio A used an allowed loss to offset a gain, it may have paid less tax today. Its replacement lot may also have a lower basis. Portfolio B may have paid tax earlier but now carry a higher basis.

The difference in current tax is deferral until the future paths are modeled. It may become more valuable if the rate later falls, the asset is donated, or current basis-at-death rules apply. It may shrink if the replacement is sold soon at the same or a higher rate.

Include Investment Differences

Tax harvesting usually requires a different security during the wash-sale window. The replacement can outperform or underperform. That tracking difference is an investment result, not tax alpha, and it must be included in the comparison.

Fees, bid-ask spreads, and time out of the market also belong in the model.

Report a Range, Not a Single Promise

Show results under multiple future tax rates, holding periods, and liquidation dates. Label which values are known and which are assumptions. A useful report separates:

1. tax paid to date;
2. unused loss carryforwards;
3. estimated embedded tax;
4. costs and tracking difference;
5. after-tax value under each scenario.

For the missing dashboard fields, read what your brokerage performance chart leaves out. For a long-horizon comparison without an invented backtest, see regular harvesting versus market timing over 20 years.

Bottom Line

Identical pre-tax returns can coexist with different after-tax positions, but the gap must be calculated—not asserted. Use the same portfolio inputs, tax assumptions, liquidation rule, fees, and replacement returns for both accounts, then show how sensitive the answer is to the future.