After Tax

What is After Tax?

After tax can be defined as the amount of money that an organization or an individual is left with after all state, federal and withholding taxes are deducted from the total taxable income. Therefore, after tax income represents the total amount of disposable income that a firm or consumer can spend on present consumption on future investment.

When forecasting or analyzing corporate or individual cash inflow, it is imperative that a proper estimation of the after tax cash flow is made. This is usually perceived as the adequate measure because after tax cash flows are precisely what the consumer or the organization is left with to use for consumption.
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However, this does not necessarily mean that all investments are purchased only with the after tax income. There are many companies that offer salary deferral retirement schemes that deduct a pre-specified money or percentage on a pretax basis. The money will be taxed when the employee goes on to withdraw the net sum (for example, before retirement). However, since most people tend to earn less during retirement as compared to their earning days, the overall amount of tax-to-be-paid will be a lot less.

After tax is also referred to as the Income After Tax.

After-Tax When one is investing in loan instruments like debentures or bonds or fixed deposits, and when one is an income-tax payer, it is the after-tax return which is the real return, not the rate of interest. The relevant rate of interest on the investor’s slab of income should be deducted from the earnings, and the actual return compared with returns from tax-sheltered instruments, such as tax-free bonds.

It also is relating to earnings or income from which tax has already been deducted

 

Edited and Updated 2nd January 2014

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