Taxes & Costs (US)

1. Why costs and taxes matter more than most people think

Most investors focus on returns and ignore the “friction” between their money and the market. Over 10–30 years, fees and taxes can quietly remove a large part of the result, even when markets perform well.

The goal is not to avoid every cost – that is impossible – but to understand where the main leaks are and decide consciously.

2. Main types of costs when you invest in US assets

When you invest in US stocks or ETFs, especially from outside the US, you typically face several layers of cost:

• Trading commissions – explicit fees per trade (many brokers offer $0 commissions on US stocks and ETFs, but check the details).
• Bid–ask spread – the gap between buy and sell prices in the market. Wider spreads mean more hidden cost when you enter and exit.
• FX conversion costs – fees or spreads when converting from your local currency into USD and back.
• Fund expense ratios (TER) – the ongoing percentage charged by ETFs and mutual funds to run the fund.
• Slippage – the difference between the price you expect and the price you actually get when orders fill.
• Taxes – on dividends, interest, and realised capital gains, depending on your country and the type of investment.

Each item might look small on its own. Combined, they can shift a 7–8% gross return into something meaningfully lower over the long run.

3. US tax basics for non-US investors (high level only)

If you live outside the US and invest in US stocks or ETFs, you usually face two levels of tax: US rules on certain income, and tax rules in your home country.

• US withholding tax on dividends – the US may withhold a percentage of dividends paid on US stocks and ETFs. The exact rate depends on the tax treaty (if any) between the US and your country.
• Capital gains in your home country – when you sell at a profit, your home country may tax the gain. Rates, exemptions, and reporting rules depend on local law.
• ETF domicile – some investors use Ireland- or Luxembourg-domiciled ETFs that hold US stocks. These funds may handle US withholding internally, and you are then taxed under your local rules on distributions and gains.

This page cannot tell you exactly what you will pay. The point is to make you aware that the same ETF or stock can have very different after-tax results for investors in different countries.

4. Simple principles for keeping drag under control

• Prefer low-cost, broadly diversified funds over high-fee products or complex structures you do not understand.
• Minimise unnecessary trading – fewer trades usually means lower commissions, less slippage, and fewer taxable events.
• Be deliberate with FX – avoid constant small conversions if your broker charges fixed FX fees.
• Understand how your broker reports tax information – some brokers provide tax reports or summaries, others do not.
• Check official guidance – use your local tax authority’s resources or a professional to confirm key rules.

5. Taxes & costs calculator

The goal of the Taxes & Costs calculator is to let you experiment with:

• Different annual return assumptions.
• Various fund expense ratios (for example, 0.05% vs 0.50%).
• Different trading frequencies and commission levels.
• Simple approximations of tax drag on dividends and realised gains.

By adjusting the inputs, you can see how small differences in cost accumulate over time and how much of the final result you actually keep.

If you are using an embedded version of the calculator on this page, scroll down to interact with it. If the calculator opens in a separate tool page, use the button at the top of this page to jump there.

6. When to get professional help

Taxes are one area where small mistakes can be expensive. Consider speaking with a qualified tax professional if:

• You hold significant assets in multiple countries.
• You are unsure how US withholding and local tax rules interact.
• You plan to move countries while holding US assets.
• You run into complex situations (for example, using companies, trusts, or retirement wrappers).

Use QuantRoutine to understand the structure and questions to ask, not as a replacement for local tax advice.