After-tax investment returns: what freelancers need to know
After-tax investment returns explained for freelancers, with a worked example, a checklist and the mistakes to avoid.
Why this matters for freelancers
No employer withholds tax for freelancers, so every invoice should be treated as partly the tax authority's money. Getting the numbers right early avoids a painful bill at year-end.
Worked example
Here is the calculation with sample figures. Change any number in the After-Tax Return Calculator to run your own.
| Pre-tax return (%) | 7% |
| Tax rate (%) | 22% |
| After-tax return (%) | 5.46% |
|---|
After-tax investment returns: how it works
A 7% return is not 7% if part of it is taxed. Multiplying the return by 1 minus the tax rate shows what you keep.
Over many years the gap between pre-tax and after-tax compounding becomes large.
A second example with larger figures
Scaling the inputs up shows how the result moves. Percentages stay the same, so the tax grows in proportion to the amount it is applied to.
| Pre-tax return (%) | 7% |
| Tax rate (%) | 22% |
| After-tax return (%) | 5.46% |
|---|
Using the calculator step by step
- Open the After-Tax Return Calculator.
- Enter your own figures on each numbered line.
- Set the rate to the one that applies to you. Defaults are examples, not advice.
- Read the result and the formula below it.
Key terms
- Effective rate
- Total tax divided by total income, the average rate you actually pay.
- Net amount
- The amount before tax is added. On an invoice it is the figure the tax is calculated on.
- Exempt supply
- A sale that falls outside the tax entirely. No tax is charged and input tax usually cannot be reclaimed.
- Withholding
- Tax deducted at source, by an employer or payer, before the money reaches you.
- Reduced rate
- A lower rate that applies to specific categories, often essentials such as food, medicine or books.
A quick checklist for freelancers
- Identify how each return is taxed.
- Apply the right rate to each part.
- Compare accounts on an after-tax basis.
Common mistakes to avoid
- Comparing pre-tax returns across taxable and tax-advantaged accounts.
- Forgetting that some returns are taxed only on sale.
Run your own numbers. The After-Tax Return Calculator updates as you type and shows the formula it uses.
Frequently asked questions
Why should freelancers care about this?
No employer withholds tax for freelancers, so every invoice should be treated as partly the tax authority's money. Getting the numbers right early avoids a painful bill at year-end.
What is the quickest way to calculate it?
Use the After-Tax Return Calculator: enter your figures and it shows the result and the formula.
Is this tax advice?
No. It is general information for planning. Rules differ by country and change over time, so confirm with your tax authority or a qualified adviser.
This article is general information for planning, not tax advice. Rates and rules change; confirm with your tax authority or a qualified adviser.