UNITED STATES
- Manage for the 40.8% vs 23.8% ORDINARY-vs-PREFERENTIAL spread: locate bonds, REITs, and high-turnover strategies in IRAs/401(k)s; hold qualified-dividend equities and long-term winners in taxable accounts.
- Never realise a short-term gain if a >1-year hold is possible — a 17-point rate difference.
- Use SPX/index options and futures (Sec. 1256, 26.8%) instead of SPY options (40.8%) for hedging.
- Do not hold physical gold ETFs in taxable accounts (31.8% collectibles rate).
- Harvest losses continuously and specific-ID lots; never let the wash-sale rule bite.
- Hold appreciated low-basis assets until death for the Sec. 1014 step-up; gift high-basis or fast-growing assets during life.
- For NON-US clients: never hold US shares directly — use Irish-domiciled UCITS ETFs to sidestep the 40% US estate tax on a $60k exemption.
aWealth & net-worth taxes
NO federal or state net-wealth tax. Recurring proposals (Warren federal 2%/3%; CA AB 259; WA; NY) have never been enacted. Note the US taxes CITIZENS AND GREEN-CARD HOLDERS on worldwide income wherever resident — residence-based planning does not work for US persons.
QUASI-WEALTH TAXES: (i) Local ad valorem property tax on real estate, typically 0.3%-2.5% of assessed value (NJ ~2.2%, IL ~2.1%, HI ~0.3%). (ii) IRC Sec. 877A expatriation "exit tax": covered expatriates (net worth > $2m, or 5-yr average tax > ~$206k (2025), or non-compliance) are deemed to sell all worldwide assets at FMV on the day before expatriation; 2025 exclusion ~$890,000. Deferred comp / IRAs taxed separately. This is a one-off wealth tax on departure and is the single biggest planning issue for mobile US persons.
LOCAL/STATE OVERLAY: no state levies a net-worth tax, but WASHINGTON STATE levies a 7% excise tax on long-term capital gains above ~$270k (indexed), plus a 2.9% surcharge above $1m (9.9% total) from 2025 — a capital-gains tax in a state with no income tax.
bCapital gains
FEDERAL RATES. Short-term (held <= 1 year): ordinary income rates, top 37%, + 3.8% Net Investment Income Tax (NIIT) = 40.8%. Long-term (held > 1 year): 0% / 15% / 20%, + 3.8% NIIT = 23.8% top. The 20% band begins around $550k single / $620k MFJ (2026, indexed). The 2025 OBBBA made the TCJA rate structure permanent.
ASSET-CLASS DIFFERENCES (all + 3.8% NIIT):
- Listed equities / bonds / funds: 23.8% LT, 40.8% ST.
- COLLECTIBLES (physical gold and silver, GLD/SLV and other physically-backed metal ETFs, art, antiques, wine, rare coins, stamps): max 28% + 3.8% = 31.8%, regardless of how long held.
- Sec. 1256 CONTRACTS (regulated futures, broad-based index options such as SPX/XSP/NDX, non-equity options, futures on currencies): MARKED TO MARKET every 31 Dec and taxed 60% long / 40% short irrespective of holding period = 26.8% before NIIT, 30.6% with. Losses may be carried BACK 3 years against prior 1256 gains (Form 1045). Materially better than SPY options (equity options, ordinary ST treatment).
- Real property: 20%/23.8% plus 25% "unrecaptured Sec. 1250" depreciation recapture.
- Sec. 1202 QSBS: up to 100% exclusion; OBBBA 2025 added tiered exclusions at 3 yrs (50%), 4 yrs (75%), 5 yrs (100%) and raised the cap to $15m for stock issued after 4 Jul 2025.
- Crypto: property; LT/ST as above.
LOSSES: capital losses offset capital gains without limit (ST losses net first against ST gains); excess net capital loss offsets only $3,000/yr of ordinary income; carried forward INDEFINITELY, no carryback for individuals. WASH SALE rule (Sec. 1091) disallows a loss if substantially identical securities are bought 30 days before or after; it does NOT apply to Sec. 1256 contracts and — as of 2026 — still does not apply to crypto (repeatedly proposed; verify). Also watch Sec. 1092 straddle rules and Sec. 1259 constructive sales.
BASIS: FIFO default; SPECIFIC IDENTIFICATION permitted for securities (the foundation of US tax-loss harvesting and direct indexing); average cost for mutual funds. STEP-UP IN BASIS AT DEATH (Sec. 1014) eliminates all unrealised gain — the dominant US planning fact.
cInterest income
Ordinary income, top federal 37% + 3.8% NIIT = 40.8%, plus state. OID and market discount accrue currently.
EXEMPT / PREFERENTIAL: municipal bond interest is exempt from federal tax (and from state tax in the issuing state) — the classic high-bracket allocation; taxable-equivalent yield = muni yield / (1 - 0.408). US Treasury and agency interest is exempt from STATE and local tax (worth ~13.3% in California). Private-activity muni interest is an AMT preference.
State income tax adds 0% (FL, TX, NV, WA, SD, WY, AK; NH repealed its interest & dividends tax from 2025) to 13.3% (CA), 11% (HI), 10.9% (NY, plus NYC ~3.9%), 10.75% (NJ). Combined top on interest can reach ~54% for a New York City resident.
dDividend income
QUALIFIED DIVIDENDS are taxed at the long-term capital gains rates 0%/15%/20% + 3.8% NIIT = 23.8% top — a large preference over interest (40.8%). Requirements: paid by a US corporation or a "qualified foreign corporation" (resident in a country with a comprehensive US income tax treaty, or the shares are readily tradable on a US exchange), AND the holder satisfies a >60-day holding period within the 121-day window around the ex-date (>90/181 days for preferred). Hedging a position tolls the holding period.
NON-QUALIFIED (ordinary, up to 40.8%): REIT dividends, most BDC dividends, bond-fund distributions, money-market income, dividends on shares held under the holding period, payments in lieu of dividends on lent shares, MLP ordinary income, and dividends from PFICs.
REIT dividends qualify for the 20% Sec. 199A deduction (made permanent by OBBBA 2025): effective 29.6% + 3.8% = 33.4%.
PFIC TRAP: non-US pooled funds (UCITS ETFs, SICAVs, foreign mutual funds) are PFICs for US persons — punitive Sec. 1291 interest-charge regime at 37% plus interest, unless a QEF or mark-to-market election is available. US persons abroad must hold US-domiciled funds.
Foreign withholding tax on foreign dividends is creditable (Form 1116) but subject to basket limitations; in a tax-deferred account it is a permanent leak.
eEstate, inheritance & gift tax
UNIFIED FEDERAL ESTATE AND GIFT TAX at a flat 40% top rate. Basic exclusion $15,000,000 per person from 2026 (OBBBA 2025), indexed — $30m per married couple with PORTABILITY of the deceased spouse's unused exclusion (form 706 election required). Unlimited marital deduction for a US-citizen spouse (a QDOT is required for a non-citizen spouse). Unlimited charitable deduction. Separate GST tax at 40% with its own $15m exemption (not portable).
GIFTS: annual per-donee exclusion ~$19,000-$20,000 (2026, indexed), unlimited for direct payments of tuition and medical bills. Lifetime gifts consume the unified exclusion. Gifted assets carry over basis (no step-up) — so gift high-basis assets and BEQUEATH low-basis assets.
STATE LAYER (major planning variable): 12 states + DC levy estate tax — OR (threshold $1m, up to 16%), MA ($2m), WA (up to 20%, the highest US rate), MN, IL ($4m), NY ($7.16m with a "cliff" that wipes out the exemption entirely above 105% of the threshold), MD, VT, RI, CT (matched to federal), HI, DC. Six states levy INHERITANCE tax on the recipient: PA (4.5% lineal, 12% sibling, 15% other), NJ, KY, MD, NE (county-level); IA completed its phase-out in 2025. FL, TX, NV, AZ, TN, NH have none.
NON-US PERSONS: the US taxes NON-RESIDENT ALIENS on US-SITUS assets at 40% with only a $60,000 exemption. US-situs includes shares of US corporations (wherever held), US real estate and tangible property, but NOT US bank deposits, portfolio-interest debt, or shares of non-US corporations. A European or Swiss client holding $10m of US stocks directly faces ~$3.98m of US estate tax. Standard fixes: hold US equities through a non-US holding company, an Irish/Luxembourg-domiciled UCITS ETF (non-US situs), or an irrevocable non-US trust; or rely on a US estate tax treaty. NRAs pay US GIFT tax only on US real estate and tangible property — NOT on gifts of US shares, so lifetime gifting of US stock by an NRA is a clean fix.
fTreaties — US & Switzerland
SWITZERLAND: INCOME TAX TREATY in force (1996; 2009 Protocol effective 20 Sep 2019 — mandatory binding arbitration, expanded information exchange, 0% withholding on dividends to pension funds and to 10%+ corporate holders). Dividend withholding 15% portfolio / 5% for 10%+ corporate holders; interest and royalties generally 0%.
ESTATE TAX TREATY with Switzerland in force (1951) — situs and credit relief, pro-rated unified credit for Swiss decedents holding US assets.
The US has ~66 comprehensive income tax treaties, and only 15 ESTATE/GIFT tax treaties: Australia, Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, South Africa, Switzerland, UK, and Canada (estate relief delivered through Art. XXIX B of the income treaty rather than a standalone estate treaty).
NOTABLE GAPS for this table: NO US estate treaty with Spain, Portugal, Belgium, Luxembourg, Poland, Sweden (terminated 2008), the Baltics, Cyprus, Malta, Czechia, Slovakia, Hungary, Romania, Bulgaria, Croatia or Slovenia.
NOTABLE INCOME TREATY GAP: the US TERMINATED its treaty with HUNGARY effective 1 Jan 2024.
gDeferral strategies & special regimes
CORE VEHICLES (2026 figures approximate/indexed): 401(k)/403(b) employee deferral ~$24,500 (+$8,000 catch-up at 50+, ~$11,250 "super catch-up" at 60-63); total 415(c) additions ~$72,000; Traditional/Roth IRA ~$7,500; SEP/solo 401(k) for the self-employed; defined-benefit / cash-balance plans (six-figure deductible contributions for older high earners); HSA (triple tax-free); 529 plans (tax-free growth, $19k/yr per beneficiary or 5-year superfunding, 529-to-Roth rollovers up to $35k).
RATE/TIMING ARBITRAGE: Roth conversions in low-income years or between retirement and RMD age; backdoor and mega-backdoor Roth; NUA (net unrealised appreciation) on employer stock in a 401(k) — LTCG rates instead of ordinary; QSBS stacking and Sec. 1045 rollovers; Sec. 1031 like-kind exchanges (real property only); Qualified Opportunity Zones (made permanent by OBBBA with rolling 5-year deferral from 2027); exchange funds (7-year lock, diversification without realisation); charitable remainder trusts; donor-advised funds funded with appreciated stock; direct indexing / systematic tax-loss harvesting; ETF in-kind redemption (structurally suppresses capital gain distributions vs mutual funds); PPLI and private placement variable annuities for hedge-fund and credit exposure.
ESTATE FREEZES: GRATs (zeroed-out, rolling short-term), sales to intentionally defective grantor trusts (IDGTs) at the AFR, SLATs, CLATs, FLPs/LLCs with valuation discounts, and life insurance in an ILIT.
SAMPLE CALCULATION 1 — 401(k): a New York City executive at a 40.8% federal + ~14.8% NY/NYC = ~50% combined marginal rate defers $24,500. Immediate tax deferred = $12,250. Over 20 years at 7% the account grows to $94,800; if she retires to Florida and withdraws in a 24% bracket, tax = $22,750, net $72,050. The same $12,250 of tax invested in a taxable account (after paying the tax, $12,250 net contribution) with ~1.5%/yr tax drag returns roughly $42,000 after embedded gains tax. Net advantage ~$30,000 per year of contributions, driven mostly by the 50% -> 24% rate arbitrage.
SAMPLE CALCULATION 2 — TAX-LOSS HARVESTING + STEP-UP: a $10m direct-indexed portfolio in year 1 of a normal market harvests ~3-5% of value in losses, say $400,000. Applied against $400,000 of long-term gains from a concentrated-position sale: tax deferred = $400,000 x 23.8% federal + 13.3% CA = $148,400. The harvested losses lower basis, but if the portfolio is held to death, Sec. 1014 steps basis up and the deferral becomes PERMANENT FORGIVENESS.
SAMPLE CALCULATION 3 — 2-YEAR ZEROED-OUT GRAT: $10m of stock, Sec. 7520 rate 5.0%, annuity ~$5.38m/yr so the taxable gift is ~$0. If the stock compounds at 15%, roughly $1.05m remains in the GRAT and passes to the remainder trust free of gift and estate tax — saving 40% x $1.05m = $420,000 of estate tax at zero exclusion cost. Roll a new GRAT every 2 years.