Tax Strategy — United States

Why the US case is distinct

The US is the largest pool of private capital in the world and has one of the more complex tax regimes affecting it. The complexity is not primarily a function of total rates, the headline federal rates (37% ordinary, 20% long-term capital gains, plus the 3.8% net investment income tax, plus up to 13.3% state) are not out of line with other developed economies. The complexity is structural: a patchwork of federal income, federal estate, federal gift, federal generation-skipping transfer, and state-level income and estate regimes that interact in consequential ways.

At scale, US tax strategy is less about optimizing within any single regime and more about the architecture across all of them. A household paying 50% combined marginal rates in California and holding appreciated real estate has fundamentally different levers than a Texas household with a concentrated operating business. The framework below organizes the moves that repeatedly matter.

The federal layer

Income tax. Top marginal ordinary rate of 37%, applied above roughly $731,000 for married-filing-jointly households (2026 brackets, adjusted annually). State tax adds on top, flat or graduated depending on the state. The federal rate alone is not the biggest variable; the character of income and the state overlay usually are.

Long-term capital gains. Top rate of 20% for gains on assets held more than 12 months, plus the 3.8% NIIT for high-income households, for a 23.8% federal top rate. Meaningfully below ordinary rates, which is why holding periods, installment sales, and opportunity zones matter.

Qualified Small Business Stock (Section 1202). One of the most valuable planning tools available to US founders. Under Section 1202, qualifying stock in a C-corporation held for more than five years may have up to $10M (or 10x basis, whichever is greater) of gain excluded from federal capital gains tax on sale. The rules require a qualified small business at issuance (under $50M gross assets), an active business in specific categories, and documentation of issuance and holding. Stacking, gifting QSBS to family members and non-grantor trusts before the five-year sale, can multiply the exclusion significantly. Every founder of a C-corporation who has held stock for less than five years should have a QSBS analysis on file.

83(b) elections. For employees receiving restricted stock, an 83(b) election filed within 30 days of grant allows the recipient to pay ordinary income tax on the current (low) value rather than on the future vested value. Missing the 30-day window is uncorrectable. Standard practice for early employees; often overlooked by founders who received their stock through operations rather than formal grants.

Net Investment Income Tax (NIIT). 3.8% additional tax on investment income above certain thresholds. Active businesses and real estate activities with sufficient involvement (real estate professional status) can be excluded from NIIT. The optimization affects many high-income households with mixed active and passive income.

Self-Employment Contributions Act (SECA) / FICA. For active business owners, the structure (S-corp vs. LLC/partnership vs. sole prop) affects self-employment tax exposure. S-corp structuring with reasonable compensation remains a standard planning move for many operating businesses.

Federal estate and gift regime

Lifetime exemption. As of 2026, the federal estate and gift tax exemption is in the range of $13–14M per individual (the exemption is scheduled to reduce by roughly half at the end of 2025 under current law; planning assumes the reduction unless Congress extends). Above the exemption, estate and gift tax is 40% federal.

Annual exclusion gifts. $19,000 per recipient per year (2026 figure), gift-tax-free, with generation-skipping transfer (GST) tax implications for skip-person gifts. The cumulative effect across a large family is non-trivial.

Crummey withdrawal rights. The structural device that allows gifts to trusts to qualify for the annual exclusion. Standard in ILITs and many dynasty trusts.

Portability. The ability to transfer a deceased spouse’s unused exemption to the surviving spouse. Requires a timely-filed estate tax return (Form 706) even when no tax is due, routinely missed by executors of non-taxable estates, closing off significant planning flexibility.

Generation-Skipping Transfer (GST) tax. An additional 40% tax on transfers to grandchildren and further descendants, above a separate GST exemption (historically aligned with the estate exemption). The interaction with dynasty trusts is central: a GST-exempt dynasty trust funded at today’s exemption can compound tax-free for generations.

State-level considerations

State tax treatment is at least as consequential as federal for many households, and is almost entirely under the family’s control through residency decisions.

Income tax states. California (13.3% top), New York (10.9% top, plus NYC’s 3.876%), New Jersey (10.75% top), Oregon, Minnesota, and several others impose meaningful income tax on residents. For high-income households, the difference between California and Texas is 13.3% of ordinary income annually, $1.3M per year on $10M of income.

Zero income tax states. Florida, Texas, Washington, Nevada, Tennessee, South Dakota, Wyoming, and a handful of others. Florida and Texas dominate the relocation flow; the infrastructure for high-net-worth relocations from high-tax states is well-developed.

State estate tax. Sixteen US states and DC impose their own estate tax, often at significantly lower exemption thresholds than federal. Massachusetts, Oregon, Washington, Illinois, and New York are consequential. The difference between dying in Florida and dying in Massachusetts on a $20M estate can exceed $2M in state-level tax alone.

Trust state tax. The state of trust situs affects the trust’s state income tax exposure. South Dakota, Nevada, Delaware, and New Hampshire host the majority of sophisticated dynasty trusts due to favorable trust law and no state income tax on trust income (subject to complex rules about beneficiary residency).

Audit aggressiveness on residency changes. California, New York, New Jersey, and Massachusetts all aggressively audit households claiming departure to zero-tax states. A sloppy departure, maintaining a primary home, voting, or working in the origin state, routinely triggers multi-year audits that reverse the benefit.

The vehicles US planners actually use

Dynasty trusts in SD/NV/DE/NH. Long-duration irrevocable trusts with generation-skipping provisions, structured to hold assets for multiple generations while remaining outside the taxable estate of each generation. South Dakota is the most common choice for new dynasty trusts (no state income tax on trust income, strong privacy, favorable trust law).

SLATs (spousal lifetime access trusts). Irrevocable trusts for a spouse’s benefit, removing settled assets from the joint estate while preserving indirect access. Paired SLATs require careful drafting to avoid reciprocal-trust doctrine.

GRATs (zero-out GRATs). Short-term rolling GRATs (typically 2-year terms) sized to return exactly the asset value plus the §7520 rate as an annuity. Every dollar of appreciation above the rate passes to beneficiaries gift-tax-free. Highly effective for concentrated pre-IPO stock, volatile assets, and private company equity.

IDGTs (intentionally defective grantor trusts). The grantor is treated as owning the trust for income tax purposes but not for estate tax, enabling tax-free sales of appreciating assets to the trust in exchange for a note.

QSBS stacking trusts. Non-grantor trusts structured to receive QSBS gifts in a way that multiplies the per-taxpayer exclusion. Specific structuring requirements; significant tax value when executed correctly.

QPRTs (qualified personal residence trusts). Transfer primary residence to an irrevocable trust while retaining use for a term of years. If the grantor survives the term, the residence passes to beneficiaries at a reduced gift-tax cost.

CRTs (charitable remainder trusts). Split-interest trusts that can convert highly appreciated positions into income streams at tax-free exit. Particularly useful for concentrated stock, closely-held business interests, or heavily appreciated real estate.

CLTs (charitable lead trusts). The inverse of CRTs. Charitable stream during a term, remainder to family. Effective transfer tool when low §7520 rates coincide with appreciating assets.

DAFs (donor-advised funds). The simplest charitable vehicle, immediate deduction, flexible grant timing, low administrative cost. The default charitable vehicle for most HNW US households; often used for “bunching” deductions into high-income years.

Private foundations. Family-controlled charitable entities with more control, more compliance, and meaningful multigenerational utility. 5% annual distribution requirement and 1.39% excise tax on net investment income.

Opportunity Zone Funds. Deferral of capital gains and, for certain hold periods, partial elimination. Specific geographic requirements, time-sensitive rules. Meaningful for households with major capital gains and geographic flexibility.

1031 exchanges. Like-kind exchanges for investment real estate, deferring capital gains indefinitely. Limited post-TCJA to real estate. Standard tool for serious real estate investors.

Where households most often leak value

Missed QSBS analysis. Founders who don’t confirm QSBS status, don’t document it, or miss the five-year hold by days. Frequent and expensive. Every US C-corp founder should have a dated QSBS analysis on file within the first year of issuance.

Failure to file Form 706 for portability. Surviving spouses who lose the unused exemption because no return was filed. Can be fixed with a late election in some cases; shouldn’t need to be fixed.

Inefficient state residency. Households that could relocate but don’t, paying 10%+ per year in avoidable state tax. Also the reverse, households that claim relocation without clean facts and lose on audit.

Trust situs mismatched to state tax. Dynasty trusts held in the grantor’s high-tax home state rather than a favorable trust state, paying state income tax on trust income that could have been structurally avoided.

Ordinary-income character where capital-gain character was available. Carried interest held less than three years, short-term sales that could have been extended, dividend structures that could have been capital gain.

Unused annual exclusions. Families that could give $19k × many recipients × many years without touching lifetime exemption, but don’t. Over a decade, this easily totals millions in transferred wealth.

Philanthropic gifts of cash rather than appreciated securities. Households that write checks to charity from ordinary income rather than donating appreciated securities, paying full capital gains on future liquidations of the securities held. The math is almost always against cash giving.

Entity structure drift. S-corp ownership sitting in individual names when a C-corp conversion or trust holding would have been materially more tax-efficient for a specific transaction. Restructuring prior to a liquidity event is routine but rarely cheap.

Moves with unusually high leverage

Pre-transaction GRAT of concentrated stock. Before an IPO or sale is priced, move the stock into a zero-out GRAT. Appreciation above the §7520 rate escapes the estate permanently. Most effective when the grantor is confident the asset will appreciate significantly over a short hold.

QSBS stacking. Gift QSBS to family members and non-grantor trusts before the five-year sale. Each taxpayer gets their own $10M exclusion, $50M or $100M of QSBS exclusion is achievable with careful structuring.

Pre-sale state residency change. Establish residency in a zero-tax state at least 6–18 months before a major liquidity event, with clean facts. Saves state tax on the full gain, which on a $100M sale can exceed $13M.

Charitable vehicle funded with pre-IPO stock. Contribute stock to a DAF or CRT before the IPO. The charitable deduction is at pre-IPO value (or post-IPO if structured correctly); the fund sells tax-free; the family can diversify tax-efficiently afterward.

Dynasty trust funded at current exemption. With the federal exemption scheduled to reduce, households with significant appreciated assets should consider locking in use of the current exemption before the reduction.

Direct indexing with tax-loss harvesting. Replacing a traditional index fund position with a direct-indexed equivalent (hundreds of individual stocks tracking the index) enables continuous tax-loss harvesting. For a $10M equity allocation, the tax alpha typically runs 50–150 bps per year over the first several years.

What US households should actively avoid

Small captive insurance arrangements. 831(b) micro-captives have been aggressively challenged by the IRS. Sophisticated captives for real insurable risks remain defensible; aggressive small-captive arrangements selling tax savings disguised as insurance do not.

Syndicated conservation easements. Heavily disputed. Legitimate conservation easements on genuinely conservable property remain valid; syndicated versions marketed as tax deductions have been consistently denied and penalized.

Abusive §1202 structuring. Structures that attempt to multiply QSBS exclusion beyond what the statute and regulations support. The legitimate stacking strategies work; aggressive variations get challenged.

Offshore arrangements without substance. Arrangements moving assets to low-tax jurisdictions without genuine relocation or substance. Reporting requirements (FBAR, FATCA, Form 8938) are punishing if missed, and the underlying arrangements often fail on audit.

Where to go deeper

TIGER 21 and Long Angle members regularly surface case studies of US-specific planning decisions. For US founders and operators specifically, Hampton and Enter the Index cover post-liquidity tax planning in peer-review format. See also the Post-Liquidity Planning topic for the specific sequencing of pre- and post-transaction tax work, and the Residency & Relocation topic for state-level residency mechanics.