The objective of this paper is to examine the change of equity beta under different level of tax asymmetry in which firms face nonlinear tax schedules that potentially reduces their profitability. Tax convexity is an essential component in accounting practice but is usually overlooked in theoretical models. Under a convex tax schedule, profits are taxed at a higher rate while losses are taxed (rebated) at a lower rate. This paper presents a dynamic model based on the contingent claims framework to facilitate the relationship between beta and tax convexity. We verify that the overall effect of tax convexity on beta is positive and the effect would not be eliminated after incorporating other key determinants such as default option and growth option. Since asymmetric tax schedules are widely used in most countries, ignoring its change would understate the beta and fail to make accurate assessment of risk if the valuation framework simply assumes a symmetric tax schedule. The underestimation may last for a long time if analysts only adjust their estimation during significant changes of tax codes which seldom happens in a country. In conclusion, tax convexity should be taken into consideration in estimation of beta.