One calculator shows what a bond yield is actually worth once tax and inflation have taken their turn. The other shows what paying out returns every year costs a client compared with letting them compound. Both run on your own numbers.
Enter income, filing status and state. The page pulls the 2026 federal bracket, the 3.8% surtax and the state rate, then shows what each yield leaves after inflation.
Two portfolios earn the same pre-tax return. One pays it out and is taxed every year; the other compounds and settles up once at capital gains rates. The gap is the wedge.
Using them together. The bond grid answers what a yield is worth this year. The deferral illustrator answers what that same tax treatment costs over a holding period. One is a snapshot, the other is the compounding version of the same problem.
Tax takes its cut of the coupon first. Inflation takes a bite of what's left. Tell the page who you are and it will show you what a bond actually adds to your purchasing power.
I file as in with of , and I'm looking at .
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Pulled from the 2026 brackets for your income and state. Type over any figure if you know the client's situation better than the brackets do.
If inflation runs at
ANNUAL INFLATION
Three things happen to a coupon between the issuer paying it and you being better off.
Interest is taxed as ordinary income at your top rate, in the year it's paid, whether you spend it or reinvest it. A 5% coupon at a 40% rate is a 3% coupon.
The net investment income tax applies to investment income once household income clears $200,000 filing single or $250,000 filing jointly. It stacks on top of the bracket.
Prices rise against the after-tax amount, not the headline yield. That's why a 3% inflation rate can wipe out a 5% bond entirely once the investor is in a high bracket.
Switching the bond type at the top changes which taxes apply.
| Bond | How it's taxed |
|---|---|
| Corporate and other taxable bonds | Federal tax, the 3.8% surtax and state tax all apply. |
| Treasurys | Federal tax and the surtax apply. Interest is exempt from state and local income tax, which is worth the most in high-tax states. |
| In-state municipal bonds | Usually free of federal, state and surtax for a resident of the issuing state. The trade-off shows up in a lower starting yield. |
| Out-of-state municipal bonds | Free of federal tax and the surtax, but your own state taxes the interest. |
Two investments earn the identical pre-tax return. One pays it out as taxable distributions every year. The other retains it, with no annual tax bill, and defers the whole gain to long-term capital gains rates at sale. Clients don't spend gross returns, they spend net returns.
Pick a starting point, then move any assumption underneath it.
Conceptual illustration for advisor education. Assumes constant annual returns, distributions taxed annually and reinvested after tax, and liquidation taxed at the long-term capital gains rate on unrealized gains. It does not reflect fees, volatility, the net investment income tax, or the performance of any fund. Deferral depends on fund structure and is subject to tax-law and strategy risk, and offers no benefit inside an IRA or 401(k).