Snapshot: Tax Concerns for People in america


Residence and residence

How does a person become taxable in your jurisdiction?

A US person is subject to tax on their worldwide income. US citizens, people with a green card, and people in the USA who have enough days to pass the "Essential Presence Test" are US citizens. In addition, a non-resident alien in the United States is subject to taxation on income from US sources. Different states and municipalities can also make a person liable for tax.

An individual is subject to worldwide transfer taxation (ie inheritance, gift, and generation skipping) if the individual is a US citizen or "resident". In general, a person is considered a resident if the person is physically present in the United States with the intention of staying there permanently. Different states can also subject a person to a transfer tax. Finally, a non-domicile is subject to US transfer tax on US situs assets.


What taxes, if any, are due on an individual's income?

Section 61 of the Internal Revenue Code defines gross income as “all income from any source” unless otherwise excluded. Therefore, any increase in a taxpayer's wealth is included in income and is taxable. The income is subject to federal income tax. Depending on where the income was generated or where the taxpayer is domiciled, it can also be taxable at the state or municipal level or at both levels. There are currently seven federal income tax rates between 10 and 37 percent. Additionally, individuals can file applications as single, jointly married, separately married, or widowed. All taxpayers have the option to apply for a standard or individual deduction. The decision on which claims to bring and the benefits of the deduction are based on the taxpayer's income and filing status. Taxpayers may also be eligible for certain credits. There is also a 3.8 percent net capital gains tax that applies to individuals whose net income is above certain thresholds.

capital gain

What taxes, if any, are payable on an individual's capital gains?

Taxation on capital gains depends on whether the capital assets were held for more than a year prior to sale. If it has been held for less than 12 months, the profit is recognized in profit or loss and taxed at normal income tax rates. This is in contrast to capital assets that are held for more than 12 months and then would qualify for the preferred long-term capital gains rates. There are three capital gain rates between 0 and 20 percent. Interestingly, qualified dividends are subject to capital gain rates. Provided the taxpayer meets the holding period and the dividend is not excluded by the IRS, a qualifying dividend is paid by a company (1) that is registered in U.S. ownership (2) and is resident in a country that is the United States have an income tax contract or (3) whose shares are easily traded on a US stock market.

Gifts for life

What taxes, if any, apply when a person gives lifelong gifts?

U.S. residents are subject to federal gift tax for transfers of their worldwide assets. However, you are eligible for a lifetime exemption of $ 11.58 million in 2020. Gifts in excess of the exemption are subject to a 40 percent tax. Under current law, the lifetime waiver will be reduced to $ 5 million on December 31, 2025.

The annual exclusion is an additional exemption from gift tax. The amount is indexed for inflation and is currently $ 15,000 in 2020. A person can transfer up to $ 15,000 annually to as many people as they want. These transfers are exempt from gift tax. While gift tax also applies when non-domiciles transfer US situs property, those individuals are only eligible for annual exclusion. You are not entitled to lifelong exemption.

Finally, federal gift tax law provides for unlimited payment of tuition fees and health care costs on someone else's behalf when paid directly to the service provider, namely the university or hospital where the fees were collected.


What taxes, if any, are payable on a person's remittances at death and on their estate after death?

US residents are subject to US estate tax on the value of their worldwide assets. The remainder of lifelong exclusion that was not used for gifts during life is available upon death. Transfers to spouses of U.S. residents are not subject to inheritance tax due to the marital deduction. Transfers to spouses of non-nationals can defer estate tax if a qualified domestic trust is used. Estate tax also applies to US situs property from non-domiciles.

If a married spouse residing in the United States does not use their estate exemption amount in full, that amount can be carried over to the surviving spouse through portability. The surviving spouse is thus entitled to add the amount inherited from the surviving spouse to their exemption amount. An important difference between estate tax and gift tax is that with a gift, the recipient receives the donor base, known as the "transfer base". However, transfers on death are given a “step-up” basis, which means that the recipient's base in the asset is equal to the value at the time of the death of the deceased.


What taxes, if any, apply to an individual's property?

Property taxes are collected by the local tax authorities in the United States. These are mainly cities, villages and counties. Most of these taxes are used to support local education, which is the primary source of public education through high schools in America. Tax amounts vary widely between jurisdictions based primarily on the level and quality of services provided in the tax jurisdiction. Generally, the amounts collected annually are a small percentage (called the mill rate) of the property's appraised value. The determined value is usually a certain percentage of the fair value of the property. In addition, when real estate is transferred, many jurisdictions impose a transfer tax on the sale or transfer of the property. Depending on the jurisdiction, these may be charged to the buyer or seller with increased amounts for higher value transactions.

Material assets

What taxes, if any, are incurred on the import or export of assets other than cash by an individual in your country for personal use and enjoyment?

An individual can import up to $ 800 worth of personal items tax and duty free. Restrictions apply to alcohol, cigarettes and cigars – up to one liter of alcohol, 200 cigarettes and 100 cigars are duty-free and tax-free. American goods that have been returned and on which duty has been previously paid can be imported duty-free. Regardless, a person can bring housewares, furniture, and other personal effects into the United States tax and duty free as long as they have owned the items for at least a year. Other exceptions may apply depending on the nationality, type of import or origin of the goods.

The US does not tax exports – whether personal or commercial. However, specific documents or licenses may be required depending on the item being exported.

Other taxes

What other taxes may be particularly relevant to a person?

Most of the other taxes affecting an individual in the United States are levied by the states and may be in addition to federal tax. For example, certain states levy state income tax on personal income in addition to federal income tax. States like New York and California have tax rates between 6.85 and 13.3 percent on personal income, while other states like Florida and Texas have no additional state income tax. Many federal states also levy their own inheritance tax in addition to the estate tax. In addition to the taxes listed above, states have sales and use taxes that are levied on the purchase or use of luxury items such as airplanes and yachts.

Trusts and other holding vehicles

What taxes, if any, are applicable to trusts or other assets in your country and how are these taxes collected?

A trust is either domestic or foreign and is referred to as a grantor trust or a non-grantor trust. Grant recipients from a U.S. or foreign grantor trust are subject to tax on the income of the trust. Both types of non-grantor trusts provide important planning opportunities under US tax law. While US non-grantor trusts are taxed on worldwide income and profits at the same marginal rates that apply to individuals, although they generally hit the highest bracket at a lower threshold. If the U.S. non-grantor trust distributes income to the beneficiaries, the beneficiaries are subject to tax on the distribution. A foreign non-grantor trust is subject to US tax only on US income, which generally does not include gains from the sale of securities and personal property.


How are charities taxed in your jurisdiction?

Charities are generally not subject to tax unless the charity receives a non-taxable income (UBTI) derived from a regular business activity unrelated to its charitable causes. There are certain exemptions for income from passive activities. Each UBTI is reported annually by charities (IRS Form 990-T). Otherwise, nonprofits file their annual federal tax returns (IRS Form 990, 990-EZ, or 990-N), any applicable state tax returns, and a separate form (IRS Form 4720) to report excise duties as appropriate, but in much more limited situations than private foundations.

If a charity has employees, the charity must pay federal and state labor taxes. Certain charities such as churches and church-affiliated schools are sometimes exempt from these taxes. Charities can also owe property taxes or sales, or both, and use taxes unless they meet state or local exemption requirements or both. Some states and local governments require charities to apply to receive exemption from these taxes. If applicable, state and local governments will likely provide forms to report these taxes.

Abuse Prevention and Control Policies

What tax regulations to prevent and combat abuse apply in connection with the asset management of private clients?

US federal tax law generally ignores the technical form of a transaction and taxes it based on its substance. This is the “substance over form” approach. One application of this principle is the “tiered transaction” doctrine, which allows the IRS to re-characterize a related series of steps as a single transaction. Another example is the “economic substance” doctrine, according to which the IRS may prohibit tax benefits generated by a transaction that meets the literal requirements of the Tax Code but does not have significant economic significance other than the tax consequences. Finally, the authorities can refuse tax-free treatment of a corporate restructuring transaction if the transaction does not have a tax-free "business purpose". These common law principles were codified in the Tax Code in 2010. This provision of the tax code provides that a transaction will only be complied with if it changes the economic situation of the taxpayer and the taxpayer in a meaningful way (apart from the effects of federal income tax) has an essential purpose (apart from the effects of federal income tax) on the completion of the transaction.

Legal date

Right on:

Please provide the date when the above information is correct.

September 14, 2020.

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