The tax deferral calculator estimates how postponing taxes on an investment gain may affect long-term after-tax wealth. DGS Capital’s calculator compares two hypothetical paths: staying invested and deferring the tax, or selling, paying tax now, and reinvesting the proceeds. It is built for advisors who want to illustrate the value of deferring taxes.

When taxes are deferred, the money that would have gone to the tax bill stays invested and can compound alongside the rest of the portfolio. Over longer horizons, that difference can be meaningful. The benefit depends on returns, tax rates, and holding period, and it is not guaranteed.

No. Deferral postpones the tax. It does not eliminate it. Gains are generally taxed when they are realized, so the calculator applies an exit tax rate at the end of the horizon. In some estate-planning situations, a step-up in cost basis may change the outcome. If you want to assume a full step-up in basis at the end of the chosen investment horizon, you can click the ‘Stay Invested’ button on the chart or compare the difference in pre-tax wealth.

“Defer Taxes” assumes the client does not pay taxes on the capital gain today and is able to defer them into the future. “Sell & Reinvest” assumes the client sells now, pays tax on the gain at today’s rate, and reinvests the after-tax proceeds. Comparing the two shows how much tax paid up front could cost in lost compounding.

For the current tax rate, use the combined rate that would apply to a sale today, which for many investors includes the federal capital gains rate, the state capital gains tax rate, and the 3.8% net investment income tax (the NIIT only applies to higher income brackets). For the exit tax rate, use the rate you expect when the gain is eventually realized. Your client’s tax professional can help confirm both.

Testing a higher exit rate shows whether the case for deferral holds up if tax rates rise. As a general rule, a longer horizon gives compounding more time to offset a higher eventual tax rate, while a short horizon leaves less time to do so. Run several scenarios and compare them. For more on the logic, read our article on why the timing of paying taxes matters. Your results will depend entirely on the inputs you choose.

The calculator holds the return constant for illustration. Actual returns vary from year to year and can be negative. Try several assumptions, including conservative ones, rather than relying on a single figure. A lower assumed return generally narrows the difference between the two paths. A higher return generally widens the difference between the two paths.

It is a simplified model. It does not account for a multi-period sale, impact of dividends, fees, step-up in basis, charitable giving, changes in tax law, or the risks of any specific investment strategy. Treat results as a starting point for a conversation, not a recommendation.

Clients with a low-basis concentrated position often face a difficult choice: stay concentrated or realize a large gain to diversify. Some investment strategies, such as the tax-aware long-short strategy, can help diversify without paying the taxes now. The calculator helps quantify what an immediate tax payment could cost compared with deferring the same tax liability. The same concepts could apply to any large capital gain event. Learn more on our Concentrated Stock page.

DGS Capital offers tax-aware equity separately managed accounts to independent RIAs. Our approach is designed to help advisors manage the tax impact of diversifying or transitioning a portfolio, though outcomes are not guaranteed and tax benefits depend on each client’s situation. Learn more about managing Large Capital Gains and Portfolio Transitions.

No, the results shown in the tool are hypothetical illustrations based on the assumptions you enter and simulated data. They do not represent actual client results, are not a projection or forecast, and do not guarantee future performance. Actual outcomes could differ materially.

The calculator is designed for advisors as an educational tool. Before sharing hypothetical illustrations with clients, check your firm’s compliance policies, because client-facing use of hypothetical performance may be subject to the SEC Marketing Rule and your firm’s own procedures. This page is not tax, legal, or investment advice, and clients should consult their own tax professional.