How to Navigate the Proposed Changes to the US Tax System and Protect Your Investments
According to recent data from the Congressional Budget Office, the US budget deficit will reach $1.7 trillion by 2023, representing 6.3% of the country’s GDP. This alarming figure is driving an intense debate on tax reforms that could significantly affect international investors and entrepreneurs operating in the US market.
The current scenario presents a unique complexity: while the federal government seeks new sources of revenue to balance its books, international entrepreneurs and investors must navigate potential changes that could significantly impact their operations in the US. The proposals under discussion could represent the biggest tax reform since the Tax Cuts and Jobs Act of 2017.
I have observed that many of our clients are concerned about the impact of these possible changes on their businesses and investments. The historical stability of federal revenue at approximately 17.5% of GDP since the 1950s is under pressure, and new tax proposals could significantly alter this scenario.
This article has been structured to provide a thorough analysis of the proposed changes and their practical implications, offering concrete strategies for asset protection and tax optimization within legal limits. We will cover both immediate practical aspects and in-depth technical analysis for different investor and entrepreneur profiles.
Target audience
This content is especially relevant for
Family offices managing family wealth with exposure to the US market
International entrepreneurs with operations in the US
Foreign investors in the US market
Tax consultants and accountants serving clients with interests in the US
Lawyers specializing in international tax law
Part 1: Ready to Roll 🚀 – Basic Strategies and Practical Actions
Part 1, “Ready to Roll”, offers practical actions and immediate advice for entrepreneurs who need quick and effective guidance.
1. Fundamental Concepts
The American tax system is based on fundamental principles of fairness and efficiency. According to Internal Revenue Code (IRC) §61, taxable income includes all sources of income, regardless of origin. However, current reform proposals could significantly alter this scenario.
Main concepts we need to understand:
A. Progressive Taxation The current system maintains progressive rates ranging from 10% to 37% for individuals. For companies, the current rate has been 21% since the Tax Cuts and Jobs Act of 2017.
B. Taxable Base The definition of taxable income may change significantly, especially in relation to:
- Capital income
- Business gains
- Treatment of international income
C. Credits and Deductions The current system offers various credits and deductions that may be impacted by the proposed reforms, including:
- Accelerated depreciation
- Research and development credits
- Interest deductions
2. Initial Strategies
A. Structural Review
- Carry out a complete analysis of the current corporate structure
- Identify potential exposures to the proposed changes
- Document tax bases of important assets
B. Preventive Planning
- Establish flexible structures that can adapt to changes
- Consider the possibility of early realization of gains
- Evaluate revenue deferral opportunities
C. Asset Protection
- Diversify investment structures
- Consider using trusts when appropriate
- Implement business succession strategies
3. Practical Implementation
To implement these strategies, follow this timetable:
First Quarter:
- Complete analysis of the current situation
- Identification of specific risks
- Development of action plan
Second Quarter:
- Implementation of necessary structural changes
- Review of existing contracts and agreements
- Updating legal documentation
Part 2: Deep Dive 🤿 – Technical Deep Dive into Advanced Strategies
Part 2, “Deep Dive”, provides in-depth analysis for those wishing to delve into the technical and complex aspects of international finance.
4. In-depth Technical Analysis
A. Impact on International Structures
Under IRC §7701(a)(4) and §7701(a)(5), the distinction between domestic and foreign entities remains crucial for tax planning. The current proposals may affect:
- Treatment of Controlled Foreign Corporations (CFCs)
- Application of GILTI (Global Intangible Low-Taxed Income)
- Transfer Pricing Rules
B. Changes to Capital Taxation
The proposals include significant changes to the treatment of capital gains:
- Possible elimination of step-up in basis on death
- Potential increase in capital gains rates
- New rules for carried interest
5. Technology and Automation
Modern tax compliance requires robust management systems:
A. Control Systems
- Implementation of tax management software
- Integration with existing accounting systems
- Automation of compliance reports
B. Data Analysis
- Use of AI to identify risks
- Tax scenario modeling
- Optimization of corporate structures
6. Risk management
A. Identification of Specific Risks
- Exposure to changes in tax rates
- Impact on existing structures
- Compliance risks
B. Mitigation Strategies
- Jurisdictional diversification
- Asset protection structures
- Robust succession planning
7. Error prevention
Main points of attention:
- Inadequate documentation
- Failure to identify tax nexus
- Errors in international declarations
Conclusion
Tax reform in the US represents a critical moment for international investors and entrepreneurs. Statistics show that significant changes to the tax system could impact up to 35% of existing international business structures.
Success in navigating these changes will depend on the ability to adapt and plan ahead. Implementing robust and flexible strategies will be crucial to protecting assets and optimizing the tax burden within legal limits.
FAQs
Q: How might the proposed changes affect existing investments in the US? A: The proposed changes may primarily impact the taxation of capital gains and the treatment of international structures. It is critical to review existing structures and consider possible reorganizations to optimize tax efficiency.
Q: What is the potential impact on international holding structures? A: International holding companies may be affected by changes to the CFC and GILTI rules. A thorough review of existing structures and possible reorganization to maintain tax efficiency is recommended.
Q: How to prepare for possible increases in tax rates? A: Preparation should include analysis of existing structures, consideration of early realization of gains and implementation of deferral strategies where appropriate.
Q: What are the main considerations for succession planning? A: Succession planning should consider possible changes in the treatment of step-up in basis and implement flexible structures that can adapt to future changes.
Q: How can technology help adapt to change? A: Modern tax management systems can help with exposure monitoring, compliance and identifying optimization opportunities.
Contact us
For more information or personalized advice:
- Email: kt@kwikledgers.com
- Phone/WhatsApp: 1 (561) 867-9797
- Website: kwikledgers.com
- LinkedIn: www.linkedin.com/in/kleyton-tartarotti-66238317b
Member of the IMA (Institute of Management Accountants) – USA
Member of the AICPA (American Institute of CPAs) – USA
Member of AAII (American Association of Individual Investors) – USA
Member of AAA (American Accounting Association) – USA
Member of the FMA (Financial Management Association) – USA
These associations not only attest to Kleyton’s commitment to professional excellence, but also ensure that his knowledge is always at the forefront of international financial and accounting practices.
With a robust academic background, including a Bachelor’s degree in Accounting and MBAs in International Finance and Accounting, as well as in International Business, Kleyton offers a unique and comprehensive perspective on the global business landscape.
Through the Tartarotti Report, Kleyton invites visionary entrepreneurs and executives to connect, explore opportunities for collaboration and, together, successfully navigate the complex world of international corporate finance.
