Handling taxes (capital gains / losses)

Hi all,

Is there any way to simulate the handling of taxes in backtesting?

Our legislation requires brokers to automatically deduct 25% capital gains tax from each winning trade.
Obviously this has a significant impact on compounding, so it can really make or break strategies.

A possible implementation of this could be via only partial re-investment of gains from a trade. But I can't seem to find a way to adjust the available cash between trades.

Any help is greatly appreciated.
Thanks a lot!

If you're from Germany or the Netherlands, that's the way it's done. There are so many variables in this game, it's hard to advise.
Are you sure you deduct the taxes on a trade by trade basis?

If there is a way to keep the money, re-invest the money, then deduct taxes once a year for tax purposes, you come out ahead... I.e. if my broker is non-Germany based, it can be handled this way.

Programming-wise, I haven't seen a template, but I would start using a custom backtest procedure.

You would need to use mid-level custom backtest and subtract 25% of profit from positions that were closed given bar.

Thanks to both of you for your replies. I checked the documentation for the custom backtester already -- but obviously not close enough. I'll go re-read then :wink: