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Glossary entry · The silent subtractors
Effective tax rate
Definition
The actual share of your gross income that ends up as tax once all brackets, deductions, and allowances are applied. Always lower than your marginal rate in a progressive system. The effective rate is the honest answer to "how much of my salary do I lose to tax?".
Example
A €40,000 gross with €8,000 total tax has an effective rate of 20%, even if the marginal rate on the last euro earned is 30%.
Related
The silent subtractors
Fee
A charge taken from your investment by a fund, broker, or advisor, every year, forever.
Read →Tax
The other silent subtractor. Almost every gain you make is taxed somewhere.
Read →Expense ratio
The annual fee a fund charges, expressed as a percentage of your investment.
Read →Commission
A fee charged by a broker each time you buy or sell. Mostly $0 with modern brokers.
Read →