Hello to all,
I have been using this product for a few months and over time I realize more and more how great it is.
I have a little problem though …
Since I couldn’t get my IRR calculations back, in order to understand something, I created a very simple test movements with invented values, which I report below.
I realized that in the calculation of the IRR made by PP, taxes are not included.
In fact, with the data of the example below, PP reports a value of 7.17%, while if we also consider the taxes it should be 6.92%.
Am I getting something wrong?
In PP, is it possible to have an IRR for each security that also considers the taxes paid?
I tried to search into the forum but couldn’t find an answer…
The problem for me is that I have investment products with different tax regimes and I use IRR post taxes to better compare them. So I’ll continue to use my laborious excel file.
However, it is a real shame that PP, among the many things it does, is not able to provide this parameter as well.
After-tax returns are what the investor can eat. Ignoring taxes is good for theoretical benchmarking vs investments with the same tax regime. But basing definite decision on after-tax returns is best practice.
A large problem to correctly calculate after-tax returns are deferred taxes. E.g. how do you handle future taxes on unrealized gains? This requires individual judgements about future holding periods /tax rates and returns. I fear some part of my holdings already belong to the taxman. PP at least generates a higher number to make me smile
The link @chirlu provided - is this all the code needed for the IRR calculation? Maybe it would be possible to provide both numbers (pre-tax/after-tax) or make the calculation more customizable? The code looks possible to adjust thanks to refactoring, but I don’t know about compiling.
I am also a user who would like more tax options in PP, because costs like taxes and fees are the only ones we can surely influence, while outperformance/alpha is more elusive.
@camlt63 maybe you can use .csv export from PP as input for excel calculations? Maybe you can cut the laborious part a litle bit shorter.
In my opinion, it could be a plus for PP if it could provide both values (pre-tax / after-tax) so that everyone can then choose the one that best suits their needs.
Basically, it would be similar to what is already done for the TTWROR calculation, where both the cumulative and the annualized ones are provided.
I do not hide my ignorance on these issues, but the curious thing for me is that the IRR calculated for trades, where I saw only the entry and exit values of the security are taken into account, the taxes are instead considered in the calculation of the IRR ( 4.52% in my example above).
Honestly, the fact that these two IRRs had different values despite being calculated for the same title and having the same name and description, initially confused me.
