United States Tax Regime

The United States imposes federal income tax under the Internal Revenue Code, administered by the Internal Revenue Service (IRS), and most states and many localities add their own income taxes. The defining international feature is that the US taxes its citizens and green-card holders on worldwide income regardless of residence; other residents are taxed on worldwide income and non-residents on US-source and effectively-connected income.

The system runs on self-assessment supported by pervasive information reporting and FATCA. Most US businesses are pass-throughs — S-corporations, partnerships and LLCs — whose income is taxed in the owners' hands, so the individual rules are central even to business planning.

1.1 Sources of law and treaties

The Internal Revenue Code, Treasury Regulations, IRS guidance and a deep body of case law govern the system. The US maintains an extensive treaty network, each treaty typically containing a robust limitation-on-benefits article; notably the US has not joined the OECD multilateral instrument, so treaty changes are bilateral.

2.1 Residence and scope

A corporation is domestic if organized under the law of a US state, and is taxed on worldwide income. Foreign corporations are taxed on income effectively connected with a US trade or business at regular rates and on US-source passive income via withholding, with a branch profits tax approximating the withholding on a subsidiary's dividends.

Among domestic entities, the choice between a C-corporation (entity-level tax) and a pass-through is the single most consequential structuring decision.

2.2 Rates

Since the 2017 Tax Cuts and Jobs Act the federal corporate rate is a flat 21%, with state corporate tax (from nil to roughly 11.5%) added on top, so the combined rate varies by footprint. A corporate alternative minimum tax applies to very large corporations on book income.

Per published tax references framing; verify time-sensitive items. As-of June 2026.

2.3 Dividends, integration and participation

The US does not integrate corporate and shareholder tax: C-corporation profits are taxed at the entity level and again as dividends in shareholders' hands (the 'double tax'), mitigated only by the preferential rate on qualified dividends. A dividends-received deduction relieves tax on dividends between domestic corporations, and a participation exemption broadly exempts qualifying foreign-subsidiary dividends.

This double-tax feature is the main reason most closely held businesses operate as pass-throughs.

2.4 Income determination and cost recovery

Taxable income broadly follows accounting profit with statutory adjustments. Capital costs are recovered through MACRS, and 2025 legislation (the One Big Beautiful Bill Act) restored 100% bonus depreciation and immediate domestic research expensing and made several TCJA measures permanent — confirm the current parameters. Net business interest is capped under section 163(j) at 30% of adjusted taxable income.

2.5 Losses and groups

Net operating losses generally carry forward indefinitely but offset only 80% of taxable income in a year, with limited carryback. An affiliated group meeting the ownership threshold may file a single consolidated return, allowing intra-group offset and deferral; many states require combined (unitary) reporting, and a corporation is taxable in a state only where it has nexus.

2.6 Incentives

The signature incentive is the research credit (section 41), with a payroll-tax-offset election for qualifying startups. Energy and clean-economy credits are extensive, the qualified opportunity zone rules defer and exclude reinvested gains, and FDII gives a preferential rate on foreign-derived intangible income earned in the US.

2.7 Compliance

Calendar-year C-corporations file Form 1120 by 15 April with a six-month extension, paying estimated tax quarterly; pass-throughs file information returns (1120-S, 1065) and issue K-1s to owners. Penalties for late filing, deficient estimates and information-reporting failures are significant.

3.1 Residence and rates

Individuals are US tax residents if citizens, green-card holders, or meeting the substantial-presence test. Federal tax is graduated to a top rate of 37%, with most states adding their own income tax, and the 20% qualified business income (QBI) deduction lowers the effective rate on most pass-through income subject to wage and capital limits.

Per published tax references framing; verify time-sensitive items. As-of June 2026.

3.2 Types of income

Wages, business income, investment income and gains are taxed, with most employer benefits included in employment income. Long-term capital gains and qualified dividends enjoy preferential rates of 0%, 15% or 20% plus the 3.8% net investment income tax; interest and short-term gains are ordinary income. US citizens abroad claim the foreign earned income exclusion and the foreign tax credit.

3.3 Deductions, reliefs and tax-favoured saving

Taxpayers choose between the standard deduction and itemizing (subject to limits such as the cap on the state-and-local-tax deduction). Retirement saving is incentivized through 401(k) plans and IRAs, in deductible or Roth form, with health savings accounts and 529 education plans providing further tax-favoured vehicles.

3.4 Capital gains

Gains on assets held more than a year are long-term and preferentially taxed; like-kind exchanges (section 1031) defer gain on real-property swaps; the section 1202 exclusion can exempt gain on qualified small-business stock; and a primary-residence exclusion shelters a slice of home-sale gain.

3.5 Wealth, estate and other personal taxes

There is no federal wealth tax, but a federal estate and gift tax applies at a top rate of 40% above a large lifetime exemption (the level was changed by 2025 legislation — verify the current amount), and several states levy their own estate or inheritance taxes. An individual alternative minimum tax can apply to higher earners with certain preferences.

3.6 Compliance

Individuals file Form 1040 by 15 April with extensions to October; tax is collected through payroll withholding and quarterly estimated payments. Offshore assets require FBAR and FATCA disclosures, with steep penalties for non-filing.

4.1 Withholding and treaties

US-source FDAP income (dividends, interest, royalties) paid to non-residents is subject to 30% withholding, reduced by treaty; portfolio interest is frequently exempt. Treaty benefits depend on satisfying a detailed limitation-on-benefits article aimed at treaty shopping.

4.2 Anti-deferral (CFC) rules

The Subpart F regime taxes certain passive and mobile income of controlled foreign corporations currently, and GILTI subjects most other foreign earnings of US shareholders to a current minimum-style inclusion, with a partial deduction and foreign tax credit.

4.3 Transfer pricing

Transfer pricing is governed by section 482 and extensive documentation rules, with substantial penalties for non-arm's-length pricing; advance pricing agreements are available, and country-by-country reporting applies to large groups.

4.4 Interest limitation

Section 163(j) limits net business interest to 30% of adjusted taxable income, with disallowed interest carried forward; the BEAT minimum tax targets base-eroding deductible payments to foreign affiliates by large taxpayers.

4.5 Exit and departure taxation

A mark-to-market exit tax applies to 'covered expatriates' — citizens who renounce and certain long-term green-card holders who give up status — deeming a disposition of worldwide assets above an exclusion amount.

5.1 Assessment and limitation

The IRS generally assesses within three years of filing, extended to six years for a substantial omission of gross income and unlimited for fraud or non-filing. The economic-substance doctrine is codified, and an expanding set of reportable- and listed-transaction disclosure rules carry steep penalties.

5.2 Anti-avoidance

There is no single statutory GAAR; instead a combination of judicial doctrines (economic substance, substance-over-form, step transaction, sham) and targeted anti-abuse rules polices planning, backed by accuracy-related and promoter penalties.

5.3 Disputes and rulings

A taxpayer may contest a proposed adjustment through IRS Appeals and then litigate in the US Tax Court without prepaying the tax, or pay and sue for refund in a district court or the Court of Federal Claims. Private letter rulings give advance certainty on specific transactions.

The federal government levies no VAT; indirect taxation is a patchwork of state and local sales and use taxes.

Other taxes

Figures per published tax references framing; verify time-sensitive items. As-of June 2026.

Principal annual filing and payment obligations. Dates are indicative and subject to extensions and remitter-category rules — verify the current deadlines.

Indicative deadlines; confirm current dates, instalment thresholds and extension rules. As-of June 2026.

Compiled from published tax references. As-of June 2026. Verify all figures against the source and current law before use.