This presentation discusses US taxation. It covers various taxing entities in the US, types of taxes including income, estate, gift and sales taxes. It discusses how income is taxed for individuals and corporations. It also covers topics like FBAR reporting for foreign accounts, social security taxes, the home sale exclusion, deferred compensation rules, and standard US tax forms. The presentation is intended for discussion purposes only and does not replace personalized tax advice.

1. Taxation in the US
- Nov 2014 -
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Larry Stern, CPA (US)
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This presentation is for discussion purposes only. The information contained herein does not replace personalized tax advice. Tax rates, amnesty programs, and all other data listed in this
presentation may be updated at any time at the discretion of the US tax authorities. We are under no obligation to update this presentation based on any tax authority updates.

2. Agenda
• General Information
• Types of taxing entities, taxes, and taxpayers
• How is income taxed
•FBARs
•Hot Topics
•Standard US Forms
•Q & A
Circular 230 Disclosure: Any US or other tax advice contained in the body of this presentation is not intended or
written to be used, and cannot be used by the recipient for the purpose of avoiding penalties that may be imposed
under the Internal Revenue Code or applicable state or local laws.

3. Taxing Entities
• Federal
• State
• City
• County
• Other locality
• Different entities tax different sources, although
there may be some overlap

4. Types of Taxes
• Income Taxes
– Personal Income Tax
– Corporate Income Tax
• Social Security
• Estate & Gift Tax
• Sales and Excise Tax
• Other Taxes
– Property Taxes
– Customs Duties

5. Types of Taxpayers
• Individuals
• Business entities
• Estates
• Trusts
• Other organizations

6. How is Income Taxed?
• With certain exceptions, the following rules apply:
– Residents are taxed on worldwide income
– Nonresidents are taxed on income from sources within that
jurisdiction
– Multiple tax calculations for a single taxpayer (regular tax and
Alternative Minimum Tax) at the federal level and certain states
– Income tax rates and taxability may be impacted by international
tax treaties
– Tax rates may be progressive or flat, depending on the taxing
jurisdiction

7. Income Tax Rates
• Individuals:
– Federal: 10% - 39.6% (2014); income brackets depend of filing
status (Single, Head of Household, Married Filing Joint, Married
Filing Separate); preferred tax rates of up to 20% on certain
capital gains and certain dividends
– Net Investment Income Tax: 3.8% tax on passive income for
“high-income earners”; new as of 2013, not eligible for foreign
tax credit
– State & City: 0% - 13% (2014); tax rates vary by state, in some
states, income brackets depend on filing status

8. Income Tax Rates (cont.)
• Corporations:
– Federal: 15% - 39%
– State: varies by state
• Estates and Trusts:
– Federal: 18% - 40% (2014)
– State & City: varies by state

9. Social security
• Tax rates
– OASDI: 6.2% employer, 6.2% employee, up to $117,000
annually (2014)
– Medicare: 1.45% employer, 1.45% employee, unlimited
– Additional Medicare of 0.9% (employee only) on earned income
above $200,000 ($250,000 for MFJ)
• IMPORTANT: Self-employed individuals pay both
employer and employee portions of social security

10. Types of Disclosures
• For US citizens, permanent residents, and residents
– Disclose ownership in foreign corporations or partnerships
(where ownership exceeds 10%)
– Report foreign financial account ownership and/or signature
authority
• Form 114, formerly TDF 90-22.1 (FBAR) – if the total of all
accounts combined exceeds $10,000 during the year
• Form 8938 (new requirement as of 2011, part of the tax
return) – requirements based on filing status and assets
value

11. Estate and Gift Taxes
• Assessed at the federal and state levels
• Estate taxes
– Estate tax is an excise tax levied on the right to pass property at
death
– The estate is required to pay the tax, not the beneficiary
• Gift taxes
– Gift taxes are levied on the giver/donor of the property
– Generation-skipping transfer (GST) is assessed at the federal
and some state levels

12. Estate and Gift Taxes (cont.)
• Subject to these taxes if domiciled in the US or on US situs property
• Annual gifts allowed up to $14,000 per individual per year; do not
count against lifetime exclusion
• “Gifts” or transfers between a US domiciliary spouse and a
nonresident spouse are complicated and have separate rules.
• Domiciliaries of the US have a lifetime exclusion of up to $5,340,000
(2014); nonresidents – up to $60,000. Transfers to US domicile
spouse are tax free (unlimited).
• Tax rates range from 18%-40% (2014) at the federal level; state tax
varies

13. FBARs
• The FBAR is an annual form submitted to the
Department of the Treasury that discloses the following:
– Maximum value in the account during the relevant tax year
– Type of account (Bank, Securities, Other)
– Bank or financial institution details of where account is held
– Account number
– Details of the primary joint owner, if any
• Foreign accounts over which an individual only has
signature authority must also be reported

14. FBARs (cont.)
• The FBAR must be filed electronically by June 30.
• No extension is available
• Penalties for noncompliance can include civil fines and,
in certain cases, criminal charges
• Civil fines can reach $10,000 per year the form is filed
late (non-criminal event) and up to 50% of the maximum
value in the account per year (for criminal events).

15. FBARs (cont.)
• The FBAR requirement has existed since the 1970s as a
way to help the US Treasury fight money laundering
• After 9/11, the penalties for noncompliance with the
FBAR requirements were raised significantly (in 2004)
• The US government passed the Foreign Account Tax
Compliance Act (FATCA) in 2010 as part of other
legislation
– FATCA requires non-US financial institutions to disclose their US
account holders or become subject to a new 30% withholding tax
with respect to payments of US source income
– Effective date of July 1, 2014 for banks and other financial
institutions to start reporting to the IRS

16. FBARs (cont.)
• Form 8938 reports similar information to the IRS
• Offshore Voluntary Disclosure Program (2014)
– Pre-clearance from the Criminal Investigation Lead Development
Center
– Submission of 8 years of tax returns (amended, if needed) and
FBARs
– Civil penalties (can reach up to 50% of maximum foreign
account value), tax penalties, interest charges

17. FBARs (cont.)
• Updated Streamlined Process (2014)
– Must be “non-willful”
– Submission of 3 years of tax returns (amended, if needed) and 6
years of FBARs
– Difference for US residents vs. nonresidents:
• No penalties, yes interest charges on balances due for US nonresidents
• 5% penalty on highest balance plus interest charges on balances due for US
residents

18. Hot Topics
• Section 409A (Rules regarding deferred compensation)
– Deferred compensation plans have specific requirements (as of 2009)
– Specific impact on nonqualified (for US purposes) stock options
• Homesale
– Gains from sale of home while resident in the US are reportable
– Portion of the gain may be excluded from tax
– Requirements: Home used as primary residence for 2 out of the 5 years
prior to sale
– Exemption: MFJ: $500,000, Single/MFS/HOH: $250,000
– Exemption may be allocated if relocating and do not meet 2 out of 5 year
test
– Special rules apply for a home that has been rented out – a portion of the
gain may not be excluded

19. Hot Topics (cont.)
• Social security benefits
– Eligible for old-age retirement pension if contributing to US social
security for more than 40 quarters (10 years)
– Contributions do not need to be continuous
– Cannot voluntarily contribute to US social security
– IMPORTANT: US tax residents (citizens, green card holders,
etc.) working as self-employed individuals outside the US are
required to pay US social security (no treaty to prevent double
taxation)
– Reduction in social security benefits payments based on social
security benefits received in other countries

20. Standard US Forms
• Form 1099
– Form 1099-INT – reports interest income
– Form 1099-DIV – reports dividend income
– Form 1099-B – reports sales proceeds from sale of shares (cost basis
is only required to be included on this form if the stock was purchased
starting in 2011)
– Form 1099-G – reports unemployment income and state/local refunds
– Form 1099-R – reports retirement income
– Form 1099-MISC – reports miscellaneous income (rent or royalty
payments, prizes and awards not for services, non-employee
compensation)
• Form 1042-S
– Used for foreign person’s US source income subject to withholding
(e.g interest, dividends, royalties, pension and annuities) and
amounts withheld

21. Standard US Forms (cont.)
• Form W-9 – Request for a US person’s US social security or
employer identification number by a person or institution required to
report income or information to the US tax authorities. Usually seen in
relation to financial institutions or for self-employed individuals.
• Form W-8BEN – Request for a non-US person’s statement the
he/she/it is a nonresident of the US by a person or institution required
to report income or information to the US tax authorities. Usually seen
in relation to financial institutions. Also provides name of treaty
country, if applicable, for tax treaty rate withholding.
• Form W-7 – Application for ITIN

22. Q&A
Now is the time to ask your questions….

23. Contact Information
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Larry Stern, CPA (US)
larry@cpa.co.il
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‫טלפון‬
077-7700000