Retiring to IsraelDon Shrensky, CPA (US/ISR)Nefesh B’Nefesh Workshop      June-July 2012
Visit our website:www.dscpa-israel.comEmail: don@dscpa-israel.comCall Toll-free in the U.S.:1-888-DSCPA-99
TWO TAX SYSTEMS: U.S. taxes Israel taxes
Who is taxed?   Israel taxes residency - not citizenship   Aliyah = residency (in general)   U.S.A. taxes citizenship
Israel Taxes                     Who Is a Resident?Determined by ‘Center of Life’. Where is your permanent abode. Where ...
Israel Taxes                       Who Is a Resident? (continued)Physical presence test = presumption of residency =burden...
Israel Taxes - Pensions             U.S. Social SecurityExempt in both Israel and USA – tax treaty.             Israeli B...
Israel Taxes - Pensions              Pensions / Annuities All U.S. pensions:  10 year exemption
Israel Taxes - Pensions                 Pensions / Annuities U.S. Government pensions:   Exempt in Israel under treaty.
Israel Taxes - Pensions                  Pensions / AnnuitiesGeneral Rule (when no exemption):   35% exempt of Israeli ta...
Israel Taxes - Pensions                 Pensions / Annuities Special Rule (when no exemption):   U.S source pensions   ...
Israel Taxes - Investments10 year exemption:From Israeli income tax on all non- Israeli source investment income.From de...
Israel Taxes - InvestmentsAfter 10 year exemption – Israeli taxes on non-Israeli   source income:   Interest, dividends a...
Israel Taxes - Investments         Tax benefits – investing in Israel Interest (non-resident bank account)  • Exempt for ...
Israel Taxes - Work & Business10 year exemption: U.S. Business or Profession} Produced or Salary from U.S. employer } Ac...
Israel Taxes - Work & BusinessAfter 10 year exemption and Israeli source  income: Taxable at graduated Israeli tax rates...
Israel Taxes             NATIONAL INSURANCE (Bituach Leumi)   Income subject to special income tax rates = exempt   Inco...
Israel Taxes             NATIONAL INSURANCE (Bituach Leumi)   Aliyah / residency after age 60 –    not eligible for stand...
TrustsSettlor / Grantor     BeneficiariesIsraeli Resident      Israeli ResidentIsraeli Resident      Foreign ResidentForei...
FAQs• Should I sell my house / condo before  making aliyah?   Israel = 10 year exemption   U.S. = Principal residence ex...
U.S. Income taxesSpecial rules for U.S. Citizens living in Israel:•   Foreign Earned Income Exclusion:     Exclude up to ...
U.S. Income taxes            U.S. Social Security• Exempt from tax   In Israel   In USA• Direct deposit to bank   In Is...
U.S. Income taxes             U.S. Social Security• If self employed in Israel –   Annual benefits reduced   $1 for each...
Normal retirment ageYear of birth           Age1937 and prior          651938                    65 and 2 months1939      ...
U.S. Income TaxesInformation Reports   TD F 90-22.1 Foreign Bank Account Report - FBARs   3520       Annual Return to Re...
U.S. Income Taxes   FBARs   Super FBAR   FATCA   PFIC
Foreign Financial AssetsForeign Bank Account Report – FBAR Accounts > $10,000 on any given day in tax year Aggregate of ...
Foreign Financial AssetsForeign Bank Account Report – FBAR bank accounts brokerage accounts mutual funds Commingled fu...
Foreign Financial AssetsHIRE Act – Super FBAR  •   For years beginning after 18 Mar 2010 [2011]  •   U.S. individual/entit...
Foreign Financial AssetsHIRE Act – Super FBARFiling threshold Form 8938If living in the U.S. - >$50,000If living overseas ...
Foreign Financial AssetsHIRE Act – Super FBAR“Specified Foreign Financial Assets”:   • Any financial account maintained in...
Foreign Financial AssetsFATCAStarting in 2013 foreign banks have to enter into anagreement with the IRS.Banks will be re...
Foreign Financial AssetsFATCA 30% withholding tax at source for account holders whorefuse to divulge if they are U.S. per...
Foreign Financial Assets             FATCA - Proposed Regulations• In 2014 (for the 2013 calendar year), only the name,  a...
Foreign Financial Assets            FATCA - Proposed Regulations• Exempt from Review = Preexisting individual accounts  wi...
Foreign Financial Assets                      FATCA - Proposed Regulations•   Account balance exceeds US$1 million -     ...
U.S. Income taxes                   PFICS Holders of foreign mutual funds (‫(קרן נאמנות‬ Certain corporate shareholders ...
Visit our website:www.dscpa-israel.comEmail: don@dscpa-israel.comCall Toll-free in the U.S.:1-888-DSCPA-99
2012 nbn workshop summer 2012
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2012 nbn workshop summer 2012

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Don Shrensky's seminar from NBN pre-aliyah seminar, summer 2012

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  • 2012 nbn workshop summer 2012

    1. 1. Retiring to IsraelDon Shrensky, CPA (US/ISR)Nefesh B’Nefesh Workshop June-July 2012
    2. 2. Visit our website:www.dscpa-israel.comEmail: don@dscpa-israel.comCall Toll-free in the U.S.:1-888-DSCPA-99
    3. 3. TWO TAX SYSTEMS: U.S. taxes Israel taxes
    4. 4. Who is taxed? Israel taxes residency - not citizenship Aliyah = residency (in general) U.S.A. taxes citizenship
    5. 5. Israel Taxes Who Is a Resident?Determined by ‘Center of Life’. Where is your permanent abode. Where is your family living. Where is your regular or permanent business or place of employment. Where are your social and cultural activities located. Where are your active and substantive economic interests.Unofficial tests include: Drivers license Where do you vote?
    6. 6. Israel Taxes Who Is a Resident? (continued)Physical presence test = presumption of residency =burden of proof.Presumption of residency if you meet one of the following two tests: In Israel more than 183 days during the tax year. In Israel for 30 days or more in the tax year and a total of 425 days in the current tax year, the prior year and the year before that.Rebuttal of Presumption: By the taxpayer By the Israeli assessing officer
    7. 7. Israel Taxes - Pensions U.S. Social SecurityExempt in both Israel and USA – tax treaty. Israeli Bituach LeumiTaxable in U.S., subject to Welfare Rule.Exempt in Israel.
    8. 8. Israel Taxes - Pensions Pensions / Annuities All U.S. pensions: 10 year exemption
    9. 9. Israel Taxes - Pensions Pensions / Annuities U.S. Government pensions:  Exempt in Israel under treaty.
    10. 10. Israel Taxes - Pensions Pensions / AnnuitiesGeneral Rule (when no exemption): 35% exempt of Israeli tax 65% taxed at regular graduated rates Credit allowed for U.S. tax paid First Bite – to Israel
    11. 11. Israel Taxes - Pensions Pensions / Annuities Special Rule (when no exemption):  U.S source pensions  Resulting from work abroad  Tax payer = Oleh  Tax not more than U.S. income tax  Calculated as if remained a resident of the U.S.A  Credit for U.S. tax paid  First Bite - to Israel
    12. 12. Israel Taxes - Investments10 year exemption:From Israeli income tax on all non- Israeli source investment income.From declaring said income to the Israeli tax authorities.From possibly having to file tax returns.
    13. 13. Israel Taxes - InvestmentsAfter 10 year exemption – Israeli taxes on non-Israeli source income: Interest, dividends and capital gains @ 25% If substantive shareholder (>10%) @ 30% Real estate @ 25% Royalties = regular tax rates Rental income = • regular tax rates on net rental income (less credit for U.S. taxes paid), OR • 15% on gross rents less Israeli depreciation (no credit for U.S. taxes paid)
    14. 14. Israel Taxes - Investments Tax benefits – investing in Israel Interest (non-resident bank account) • Exempt for first 20 years (regulation) • 15% for the next 10 years Rent from residential apartment • Exempt up to 4,910 NIS per month (2012) OR • Gross rents taxed @ 10% Sale of residential apartment – exempt if no sale in previous 4 years TASE – 25% on dividends and capital gains
    15. 15. Israel Taxes - Work & Business10 year exemption: U.S. Business or Profession} Produced or Salary from U.S. employer } Accrued in U.S. From declaring said income to the Israeli tax authorities. From possibly having to file tax returns. **Consider splitting salary in the first 10 years**
    16. 16. Israel Taxes - Work & BusinessAfter 10 year exemption and Israeli source income: Taxable at graduated Israeli tax rates Subject to Bituach Leumi (National Insurance) Credit for U.S. taxes paid (federal and state)
    17. 17. Israel Taxes NATIONAL INSURANCE (Bituach Leumi) Income subject to special income tax rates = exempt Income subject to regular income tax rates = liable Exempt from contributions when reach retirement age:  60+ for women 65+ for men
    18. 18. Israel Taxes NATIONAL INSURANCE (Bituach Leumi) Aliyah / residency after age 60 – not eligible for standard retirement pension Special old age allowance Income supplement
    19. 19. TrustsSettlor / Grantor BeneficiariesIsraeli Resident Israeli ResidentIsraeli Resident Foreign ResidentForeign Resident Israeli Resident Residence of Trustee immaterial
    20. 20. FAQs• Should I sell my house / condo before making aliyah? Israel = 10 year exemption U.S. = Principal residence exemption• Should I keep my tax-exempt bonds?• Should I sell my business before making aliyah?
    21. 21. U.S. Income taxesSpecial rules for U.S. Citizens living in Israel:• Foreign Earned Income Exclusion:  Exclude up to $92,900 foreign earned income  Each spouse has separate exclusion• Tax treaty benefits:  US Social Security benefits exempt from both US and Israeli tax• U.S. Tax Returns Required:  Federal only  Not state nor city
    22. 22. U.S. Income taxes U.S. Social Security• Exempt from tax In Israel In USA• Direct deposit to bank In Israel In USA• 100% monthly benefit reduced (< full retirement age) Resident in Israel Work >45 hours / month Employee
    23. 23. U.S. Income taxes U.S. Social Security• If self employed in Israel – Annual benefits reduced $1 for each $2 earned > $14,640 (2012) First year of retirement – $1 for each $3 earned >$38,880• Full retirement age = full benefits
    24. 24. Normal retirment ageYear of birth Age1937 and prior 651938 65 and 2 months1939 65 and 4 months1940 65 and 6 months1941 65 and 8 months1942 65 and 10 months1943-54 661955 66 and 2 months1956 66 and 4 months1957 66 and 6 months1958 66 and 8 months1959 66 and 10 months1960 and later 67
    25. 25. U.S. Income TaxesInformation Reports TD F 90-22.1 Foreign Bank Account Report - FBARs 3520 Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts 3520-A Information Return of Foreign Trust with a US Owner 5471 Information Return of US Persons with Respect to Certain Foreign Corporations 5472 Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business 926 Return by a US Transferor of Property to a Foreign Corporation 8865 Return of US Persons with Respect to Certain Foreign Partnerships 8938 Statement of Specified Foreign Financial Assets [new 2011]
    26. 26. U.S. Income Taxes FBARs Super FBAR FATCA PFIC
    27. 27. Foreign Financial AssetsForeign Bank Account Report – FBAR Accounts > $10,000 on any given day in tax year Aggregate of accounts = include all accounts Financial interest • includes if own foreign company Signature authority • volunteer for non-profit organization • controller for company Penalty $10,000 for not filing each year Penalty of $100,000 or 50% of account balance for each year if willful failure to file U.S. person must file
    28. 28. Foreign Financial AssetsForeign Bank Account Report – FBAR bank accounts brokerage accounts mutual funds Commingled fund Keren Hishtalmut Kupot Gemel Bituach Minhalim Foreign-issued Life Insurance Policy – cash value
    29. 29. Foreign Financial AssetsHIRE Act – Super FBAR • For years beginning after 18 Mar 2010 [2011] • U.S. individual/entity • “specified foreign financial assets” • Aggregate value > specified amount • Report on tax return
    30. 30. Foreign Financial AssetsHIRE Act – Super FBARFiling threshold Form 8938If living in the U.S. - >$50,000If living overseas – joint return - >$400,000 on 31 Dec or > $600,000 at any time during the tax year other than joint - >$200,000 on 31 Dec or > $300,000 at any time during the tax year
    31. 31. Foreign Financial AssetsHIRE Act – Super FBAR“Specified Foreign Financial Assets”: • Any financial account maintained in a “foreign financial institution” • Any stock or security issued by non-U.S. person • Any interest in foreign entity • Any financial instrument or contract held for investment and issued by non-U.S. person • Foreign-issued Life Insurance – cash value
    32. 32. Foreign Financial AssetsFATCAStarting in 2013 foreign banks have to enter into anagreement with the IRS.Banks will be required to determine which of their accountholders are U.S. persons - due diligence.Information on U.S. persons’ bank account activity will bereported to the IRS starting from tax year 2013.
    33. 33. Foreign Financial AssetsFATCA 30% withholding tax at source for account holders whorefuse to divulge if they are U.S. persons30% withholding tax at source for all account holders atbanks that refuse to comply with FATCA.Israeli banks have agreed to comply with FATCA. Withholding applies to U.S. source income “U.S. account” = any financial account held by “specified U.S. person” or U.S. owned foreign entity
    34. 34. Foreign Financial Assets FATCA - Proposed Regulations• In 2014 (for the 2013 calendar year), only the name, address, TIN, account number and account balance must be reported.• Required reporting on income beginning in 2016 (for the 2015 calendar year)• Required reporting on gross proceeds beginning in 2017 (for the 2016 calendar year).• Withholding will not be required on foreign pass thru payments until January 1, 2017;• Participating FFIs will be required to annually report the aggregate amount of certain payments to each nonparticipating FFI.
    35. 35. Foreign Financial Assets FATCA - Proposed Regulations• Exempt from Review = Preexisting individual accounts with a balance or value of US$50,000 or less (US$250,000 for certain cash value insurance or annuity contracts) and preexisting entity accounts with a balance or value of US$250,000 or less.• Accounts with a balance or value in excess of these amounts but less than US$1 million will be subject only to review of electronically searchable records (i.e., information that can be accessed using a database search).
    36. 36. Foreign Financial Assets FATCA - Proposed Regulations• Account balance exceeds US$1 million -  Manual review of paper records  Manager’s actual knowledge of indicia of US ownership will be required, and  FFIs will need to implement appropriate policies and procedures to ensure compliance with the requirement.• Verification of compliance through third-party audits will not be mandated, and FFIs may generally rely on periodic internal reviews rather than external audits.
    37. 37. U.S. Income taxes PFICS Holders of foreign mutual funds (‫(קרן נאמנות‬ Certain corporate shareholders required Must file annual report with IRS 50% of Assets = Passive 75% of Gross Income = Passive Taxed at highest tax rate: today = 36%
    38. 38. Visit our website:www.dscpa-israel.comEmail: don@dscpa-israel.comCall Toll-free in the U.S.:1-888-DSCPA-99

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