[ HTJ Podcast ] U.S./Israel Taxes For International Entrepreneurs & Expats – 4th February 2021


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Thank you for joining us this afternoon. My name is Derren Joseph. I run a semi-autonomous TAX team within a larger practice called Moores Rowland. We are primarily focused on Asia. We have three offices in 12 countries in Asia. So, from as far North, as Tokyo and Beijing, all the way down to Australia, I have been based in Singapore for the past seven years. I am not in Singapore right now. I’m in Portugal, I kind of move around a bit like many of you, I move around for work.

Now because I am licensed by the US Department of Treasury. You know how this goes, right? I am legally required to say that everything that we say this evening should be taken as an education piece. We’re not here to give advice. I know there there’s always a minority of people who would think, you know what? I’m going to come and get on listening to this webinar and at the end of it, and I’m going to be a tax expert, and I’m going to make a decision based on what they tell me know that that certainly not our intention. We’re having a general conversation about general Principles. If you want what we would call actionable intelligence in terms of getting advice that you will take action upon them. You need to engage someone who knows your situation and say that out. So again, this is not advice. This is an education piece. And again, nothing we say here should be construed as encouraging you to be less than your fair share of Tax in any jurisdiction at which you’re exposed to.

And I haven’t been writing as well just in case. Okay? So that’s always stayed at the jail. Thank you very much for your patience. Now let’s jump in. So, when we talk about in the long arm of the law, in terms of the internal revenue service, these are two guys that unfortunately have seen the inside of a, a prison cell because they have found themselves on the wrong side of the IRS. So, we can come back to them later on. If they come up in conversation, as we go to your Q and a now, essentially these are the key points and I want to raise and I’m going to spend time really talking about what your key responsibilities are as U S exposed persons. And I’m going to touch on this stimulus payments because obviously people have a few questions on that.

So, I’m going to run through a few slides on that. And then we’re going to just give a really a helicopter view of what could be coming up in terms of the Biden tax plan or the president buy in.

So, Citizenship based taxation, I don’t think I need to see that the U S is one of those countries that does practice citizenship-based taxation like many countries. It does. The U S does tax you on your worldwide income. That that is not unusual, but what’s unusual about the us is that regardless of where you go, even though you spend time outside of the U S you will be subject to that. The long arm has the IRS. There is no avoiding that with other countries. And by spending a sufficient amount of time outside, you can avoid being subject to taxation, not with the U S now, then people asked the question, well, I’m outside of the U S you know, how is the IRS going to know what I’m doing or how much I’m earning that’s what factor comes in that final contest compliance at one that has basically done is empowered the U S government to go with signing a bunch of bilateral agreements all over the world.

And these as a nation, like Israel signs the agreement with the U S what they do is then they enact domestic legislation, which requires financial institutions within Israel to go through that books and anyone that they deemed to be U S exposed, even if the person or is it because I had multiple passports. So, do many of you, even though you may have opened that account and you operate there, account with a different passport. If the financial institution suspects that you are U S exposed, they are legally required to report you to the internal revenue service. So that’s how FATCA work is basically a free moment for information exchange.  When I tell US persons, I’m talking not just about US citizens guys, kind of obvious, but also green card holders as well, or a lawful permanent resident of the US, as well as those who are impacted by substantial presence, which is quite a number of people. Sorry, I’m getting some feedback. So, I’m going to mute your phone.

But also, people who have spent a lot of time in the U S which has been the case in 2020, because of travel restrictions, people could not return to whatever country they would’ve wanted to return to. So, through no fault of their own, they would have spent more time in the U S and their plan to, but spending a lot of time in the U S also triggers tasks for residents that we speak about of them we encounter, or at least in our practice, a lot of what we call it, accidental Americans. What do I mean by that? I mean, people who may be born to at least one U S parents, if you’re born in the us soil, that’s a pretty obvious you are an American by birth, right? But if it is, you’re born, if you bought in Israel or you bought out anywhere else in the world, but at least one of your parents is an American.

And they’re deemed to have been domiciled in a US just one Parenthood that doesn’t even need both, or just one parent. There is a strong possibility that you may be a us person and subject to taxes as well, even though you’ve never registered that birth would the embassy, you don’t have a social, you don’t have a passport. You may still be U S exposed. And then they are those who are, even though they married to someone who is not a us person that non-American spouse can elect under section 61, three G can elect to be treated as a US person for tax purposes. And that could be a strategic move, depending on your situation in the Q and A’s, there is any interest we can get into that in more detail,

You know, so responsibilities of US person. So, I think it goes without saying, well, yeah, you know, file and pay taxes. That’s obvious, but what is somehow perhaps not as well understood is information reporting. There’s a lot of the tax filing that has nothing to do with the calculation of a tax liability. It’s strictly about reporting the information because uncle Sam wants to know what U S exporters persons all over the world are up to. And I know it may sound counterintuitive when I say this, but with the U S tax code, you may be subject to agree to penalty for not reporting.

A transaction is not reporting a foreign asset. Then you would, if you simply didn’t pay your taxes. So that tells us that what they were, this is where the internal revenue service is really after is information, information, a super important. So those information returns, please pay attention to them.

Okay? No, this to me. It’s a little acronym that I made up a called best B E S T. So, you do your best. And I tell this to those who may be outside of work in a living outside of the U S for the first time write so best bank accounts. So, as I mentioned before under, this is not new. This is under the bank secrecy act. This dates as far back as 1970, 71, but post Patriot act, it has a lot more beta at what do we mean by that is that you are required to report financial accounts hell outside of the U S. And when I say financial, not just banks, but brokerage accounts or unit trusts, mutual funds, certain pensions and insurance policies, depending on whether there’s cash and the policy are not, it must be reported to the internal revenue service on your tax return.

So please keep in mind, bank accounts must be reported. That’s B, E an estimated tax. Now, when you are in the U S you get paid on a W2, and there is withholding every couple of weeks, every month, depending on the frequency, your PE that. So, it makes it easier. There’s nothing for you to do, right? Simple. Obviously, when you’re working outside of the U S it’s not going to be that simple, because there’s no automatic withholding as there is when you are on your soil. So, it is incumbent upon you as a US exposed person to work with your tax professional, to calculate what’s your estimate of tax liabilities will be, and make sure you make those payments.

And the reason why is that the service, the internal revenue service does not like to wait until the following year to receive payments. So, like we are in 2021, you should have already made your estimated payments for 2020 already based on your expectations of what you’re going to earn. So, you get your estimated payments write. Otherwise, you may have faced underpin and a payment penalty, which depending on the amount of taxes could be pretty steep, stay tax issues. You have 50 different States, 50 different rules, but most of those States are domicile States. What does that mean? It means that under certain circumstances, even though you are living in Israel, you have not been back in California.

You have not been back in Virginia for years. You haven’t seen, you have not even been on us soil. You may think, I don’t need to think about state. You know, you do a site from the obvious. If you have a States source income, like a rental property, depending on your situation, you actually miss still be domiciled in that state, depending on, you know, I’m not saying the one size fits all, but certain people are still domiciled in a state. And you may think, well, I’m not to be anyway. Who cares? Which we have had too many instances of Clients at some point in time, returning to the U S and they get hit would a really high state tax bill because the state keeps records.

They are waiting for you, the state or the franchise tax board. And the state does communicate would the internal revenue service. So, they know how much you earn. And they sometimes can make an estimate as to what the expected liability would be. Bottom line, pay attention to your state, get advice to make sure that you are not still stuck to that state last but not the least will be to be a transfer tax. And these are perhaps less well understood, right? These are your gifts in a state Taxes. So, you outside of the U S you go into a relationship. You marry someone who might not be a US person and not S exposed. And you receive a gift from them. You know, you write a check, you gift them something, and you probably have a relationship.

Otherwise, we see situations where people see great business opportunities that are entrepreneurial, the, give the, the friend or, or whatever the invest in a business or, or whatever the case may be as the transfer of assets back and forth under some certain sense on this certain circumstance at that needs to be reported as well. Again, this is not about calculating Taxes, but remember what I said earlier, that the service places have greater emphasis on information. They want to know what’s going on. So, the penalty could be depending on the situation, up to 30% of that unreported gift. So again, when you were working with your TAX teams, to make sure you let them know whether you give to something to someone, or you’ve received a gift from someone.

So that’s important.

Now, I’m going to touch on stimulus payments a bit, and it’s of course, it’s on, you know, something that people are aware of. It’s not a lot of money, but you know, every penny counts rate. So, there were, there have been two rounds, which I’m sure you are well aware of. I have everything on the screen. This is the amount of, once you have a valid social, and you are a citizen or green card holder, you should have received it. You should’ve received that many people who were EA filing. Maybe they have their bank accounts on their tax returns to make payments or whatever. It would’ve gone automatically to their account.

Otherwise, you would have gone to check in your meal at your last address for those who did not receive it for whatever reason, it’s not too late. There is a new line on the new 10 forties. They’re the main tax reform for 2020, which it still is not finalized yet. The IRS is still working on that tax filing season has been delayed because of the things like this, because of these last-minute changes that happen late in December. So, the bottom line, that means that if you did not receive those two stimulus payments, you can indicate that on your tax return.

And, and, and you can get it as a credit, which means that if you didn’t get it and you calculate, and there’s a tax liability, the liability will be reduced by the amount of the credit. And if you don’t know anything, you will get, you should get cache. You should get a check in the mail or a money will be credited to your bank account. Now, the IRS is, I’m going to be completely honest with you. You guys, there are pieces in a bit of a mess right now because of COVID-19. It has led to an, a, a fantastic delay. It is so many of my clients are complaining. So, the message I want you to take away is working with your tax team and make sure to try to e-file your returns, paper returns have been and are being delayed.

So, I know under certain circumstances, you cannot fail, but work with your tax teams as closely as possible to make sure that you do. If you found those returns, now you can go to the, the IRS has a, a portal, and they have like a Q a FAQ, or is that, you know, you can go in and you can change your trust. You can visit, or don’t be afraid to visit the IRS website. Chances are the questions that you have can be answered by going directly to the IRS website. So please, Okay. So, in terms of following requirements, some people think, Oh, well, you know, there is a common misconception, right?

That, well, I earn less than a foreign earned income, exclusion of a hundred grand. Therefore, I don’t need to pay tax is wrong. It may mean that Taxes may not be due. So, there may not be a liability. But remember when I said the IRS, the federal government is all about information. So even though you think you may not have any money, you still need to submit a tax return. And the threshold for funding, a tax return is a really low here. So, this is from the instructions for the form 10 40. And you can see that if you are filing married separately, the threshold is actually $5. So, if you made more than $5, you have to file a tax for change.

It’s a really low, please don’t assume that you don’t need to file, speak with someone and get advice. And there is a phase of our, most of our clients tend to be higher income earners. And this is a question that we commonly get, like, where’s my money, and then have to explain, well, you know, it’s a price of your success you have done really well. So therefore, there’s been a phase out and you are not going to get the stimulus payment because you simply you’re in too much. So that could be your situation as well. They do a phase out. So, if you did not get it, it’s not because the IRS for God, it may because, you just earned more than whatever the threshold may be.

And by the new tax plan, it is huge. It is huge. That can be a whole three-hour presentation on a song. And obviously we don’t have that time. So, what I did is kind of like created a snapshot of what are the key takeaways are. The key takeaway, I think is if you earn more than 400 K per year, and then you can expect an increase in, in, in, in your, in your liability, because that seems to be the magic number with at least on the personal tax side for a hundred grand above that you, you Tax was going to jump in. And depending on the situation, you, you can be pushed into a 50% tax bracket with some of these extra taxes on the corporate side.

That is the president Trump, the corporate rate that comes down to 21. If a president Biden gets it through Congress, it will go up to 28%. So, the corporate side is going to increase as well, as well as for those who may run their own companies, because we work at a lot of entrepreneurs, but a lot of business owners, people who run their businesses overseas, and they may have been subject to the guilty Tax. If you were falling into that category, the guilty is expected to increase as well. So again, there’s a lot in the magic box with, in terms of president Biden’s tax plan, nothing is done yet.

It’s still has to get through Congress. There will always be negotiations. It will be a give and take, but in terms of what he campaigned on, if you were to get everything he wanted, which is unlikely, but if he were, then this is where are we going to expect? So, if it is that you fall into one of three categories, you’re going to make more than 400 K a year. You are running a business outside of the U S or you may be affected by the reduction in the, this is the, the threshold for a state tax. Then it’s something to pick up with your tax team and we need to do some planning in anticipation of that development.

So, and that’s it from my side again, keep your questions, type them in the box below and I’ll hand over to the top for real.

Ariel Katz

So, thank you. Derren again, and you all the information and insight, I’m Ariel Katz from Katz & Co a bit about, Office a bit about myself. Office was established 1987 and we have offices in both Jews and I’m in Tel Aviv. We went by dance mayor among the biggest family in Israel where not small, but we will not too big of this means that all of our clients know MI or other partners in a very, very good, but me I’m a content and tax lawyer. I’m teaching in the Hebrew university and a four sometimes also on the IDC.

I’ve got the medal from the Institute of certified public accountants in Israel in the field, in the press regularly. So, this is this an intro to know me in our office on discussing Co. So, I wanted to speak a bit more about the connection between Israel and the US and to start by talking about the Benefits for first time Israeli tax residents and returning residents. First time, it is that the tax resident and the people who are outside of Israel for at least 10 years are entitled to 10 years of exemption bought from Texas and reporting on during the non-Israel is thought sourced income.

And this is of course in a very good text. Benefits text have been actually, but it’s important to understand in some issues about first of all, the issue of the salary, if a fellow at the time, we certainly a resident have salary or a firm outside of the Israel for, for example, a US company is paying he’s a salary while he’s sitting in Israel. This salary is a regarded extent Israeli source income, and he will need to pay a Texas in Israel on that income. So also, with respect to the business income.

So, it’s also always smart to consult and think about how to save this money without the need to report and to pay tax and at least a how to pay a lower tax on this income. There is also a possibility for a adaptation over the commendation here. This means that in the first year, you can decide not to build a guarded at the first year plus, and Israel ex-president so you can decide whether you want to stay in Israel or not, and then not to start the next 10 years a block. And another thing is to talk about is regarding the end of a period to explain.

And if you just a second, okay. The end of the period of tax planning, the people that are in Israel for eight years, seven years, nine years, and 10 years, years of exemptions is a button to turn over the years. You will be very smart to consult now and think about tax planning and how to receive the money without a pain unnecessary tax. For example, if you have a, a, a non-Israeli company, if you will take the dividends out from this company to yourself before the end of the 10 years, you will pay in Israel nothing.

But if you will receive this dividend a one month after this 10 year, you will pay for the tax on this list. And then this is Beth is a small example on how much is a very important to think about the planning of the, the end of this year. A few years, no, I want to do is the time left is to discuss a case of some US and Israeli excision issues. I will give like to three minutes, or this is an issue. So, we have time at the end for question and answers. But if a unit we want to, to have a question about it, please feel free to watch it in the chat.

And we will apply after that. So, the first issue is the first year in Israel, you are getting a tax credit for your US. A tax is paid, but only for federal or state TAX federal and state tax that will save the tax credit. You are not receiving tax credit, not for the city tax and not for national security paid in the U S this brings us to the double taxation poplin. We don’t have such a problem with in-context double taxation, but we have in the connection between the two of you may and national security is that you’re going to national security and people that are self-employed.

He pays between the romaine Israel. If they are US tax person, and many times we need to pay it also national security and the us, and this is actually a double taxation. We have some solutions to this far from one solution to establish a company is not always smart to establish a company because you have some costs and expenses to have this company, but this is a one solution, but it’s something that in mind, in other issue for us, Israeli taxation is a how Israel NDUs street, an option for employees, people from startups and high-tech industry who move a, make a relocation and walk some years in the us or some exists in Israel.

There is some kind of a mismatch between Israel and the us in the sense that in the us is like now a year you pay on this option with respect to the time you worked and lived in the in the country, in Israel, the new approach of the ITA is only a tax authority. He is that you pay on a cash basis. These means that if you work for years on the West, in the end, we receive option and He get it. The day I landed in Israel both of us in Israel and we want to pull the money for a week and these options and the, this is something to think about and to find a solution

Another thing to discuss is really the Israeli tax residency. Derren said before all this, for US tax purposes, you are US person for all of you for life fuel. Your, this person is don’t matter who you live in. The us are not in Israel. It’s not the, the same way is not the same thing in Israel. If you live enough time outside of Israel, you won’t be regarded as in Israeli takes the bus. And usually, we’ll talk about the time we rate that is between three to four years. If you’re outside of Israel below three years, 1990 9% of the time, we will be regardless. And Israeli takes president for all of the periods. Many. If you leave this out for two and a half years, for two years and come back, most of the time, these are the tax authority.

We look at you as an Israel Tax doesn’t for all of the period, but if will stay in more than four years, let’s say a four and a half, five years. It’s pretty clear that you’re not in Israeli tax resident. Most of the times, however, the timing between three to four years is the most problematic and the time it’s not clear in the depends on a different situation. I want to know, eh, mention a few minutes, the issues regarding investing in foreign companies from both sides, both of us who are sons investing in these are the companies and Israel the person invest in US company for anybody that has meant in U S companies.

For example, LLC for buying a property in the US Israeli exposed to them that have a investments in us. Private not today. Is it a private company? You must file in Israeli tax return. And the other way, one a US person that has a share in Israel company is not in the military request is to, to find the file in Israel. It, but in some cases, if you needed to do so, most of the time we can live in out of these early in the tax system, if this were the company is withholding taxes from its dividends, paid to him with respect to an inheritance States aesthetics, eh, I assume most of you already know, but eh, in the us, there is an estate tax.

And if you are not US spells, then the threshold of exemptions is quite low. Around $60,000 is this means if an Israeli person dies, they will, if you have US assets, eh, eh, and devalue is a higher than $60,000, something like that, he will need to pay a tax in US. And of course, there are some solutions for this to make your investment to the company, to work for us. And also the selection of using a life insurance in order to receive the money that will have me be suspicion to pay this States Tax in other thing to discuss, to regarding investing in, in Poland companies or when activities in the management control issue is a non-Israeli company that has managed and controlled for Israel is a God who is an Israeli company.

Or this means is in this company, you will have to pay a company’s techs Israel although it was the established outside of the Israel, for example, in the U S and then for a, an Israeli, a person who holds, eh, and all this other company always have to think about from what is the place of the management and control. And if it’s manageable at all from Israel, it can be a, or a text. Excellent. And do something to discuss the, with the sentence to let stop it.

Before we going to your questions is a Israeli people investing in US LLC. There is a problem in the investments in US LLCs costs in the U S most, most of the offices are on spearmint is means that the income as we move to the shareholder, and it’s paid by the shareholders, not by the company in Israel, eh, not every company can be transparent. And the IAA came up with this solution, which is only a partial solution. And I will explain the solution of the ITA is a tax authority, the different Israeli person, Paul’s a, a U S LLC.

Then he can elect that. Also, when Israel this company, we will be a regarded is transparent for tax purposes. These means that if the person’s paste, the text is in the U S directly, also in Israel, he will get the credit directly because otherwise you would have to pay in us as a person and in Israel is the company. So, we have a solution and the solution is good if you hold the YLC, but this solution is not so good. If you hold more than one, and you’ll see, and I will explain, let you imagine a person that holds the, to LLC at the same time, one of them made a profit of $1 million, and one of them have a loss of money on daughter in dos, both the income and the loss will go to the person and it can upset them in is not supposed to be any text in the US.

However, in Israel the watch of the idea is that, although the income, Oh, the loss comes to the person, you cannot upset the loss of what LLC with the income. Have another thing. The certainty of this will result in this person that made $1 million in more LLC and lost in the other to pay taxes. And Israel it’s that you write, or even if there isn’t a test, which is the same as the LLC. And then we understand that usually it, you should not pay in the us usually should not pay taxes in Israel, or because should receive the full credit is US a text back in the us in some circumstances where you have won LLC, this is in making money.

Another lesson, this is losing money, or he’ll end up paying the boat in Israel and boat in the us. This was something still not sold in these early systems. We also deal with eating with our clients. I assumed that if you will literally get a, a court ruling about this issue, because, eh, I assume we want the study. This is not, not the way it’s this meant to be. Then the last thing I wanted to discuss is US the expression of an exempt. Is there an income in Israel?

There are many types of income that are exempt. For example, a person who holds one apartment and sell it. For example, if you have a <inaudible> a lot, and you have income, which is kind of a moat or a pencil fund with an income, or if you have an income for a rent below a 5,000 checkers, when you have lots of exempt income in Israel in the power, is that not all of the income is exempt and the US. And in some circumstances, if you are in U S Pilsen, you may be exempt in Israel, but then you will pay the text.

This is in the us. And this is also something too to think about and discuss a volume, making your tax planning. So, eh, this is it, but now we will take the time. We do have a twenty-five minutes a day to answer the questions and to be real thoughts. And then again, take you everybody for joining this webinar today. All right. So

Derren Joseph

Q and A, we have quite a number of questions and I actually expected more questions. So, I guess as we speak to these more questions will come from it. The first one was at some point, please relate to the capital gains bullet Israel in Americana to speak to the U S side. So capital gains, do you have short-term capital gains and you’ll have a long-term capital gain. I’m not sure which one, the question or had in mind, but short-term capital gains. So, this is when you have, a sale in an asset or that you’ve held for the less than a year. It will be taxed at ordinary Tax rates, which can be as high as 37%, depending on your situation.

Derren Joseph

Right? If it is, you have a long-term capital gain, you’ve sold an asset that you’ve held for more than a year. It depends on the quantum, but it’s either 15 or 20%. So, let’s say a 20%. So, it’s quite a saving on the long-term versus short-term.

Ariel Katz

Yeah. I went also to discuss a Israeli there’s a pastime or returning residents Israel have U S a capital gains. It is also an example in the 10 years in a period after 10 years periods. It’s also partly example, for example, if I hold the asset is for 20 years and in 10 of the year’s I’m in the exemption period that I will be with them for 10 years. In addition, the foreign investments, meaning US does, and which are not, is like it’s a live event to make investments in Israel. A most of the time of example, there is a cup of tea against you have some conditions for that, but most of the time there will be exempt, eh, even is that it’s really a company or a public company by the company is after 2009. And most of the other companies will be exempt.

Derren Joseph

Hmm. Okay. Next question. In this one is a direct message. So, I don’t think you can have seen this one. Ariel can you give some examples of how a non-resident may still be considered as domiciled in a certain state? Obviously important with respect to a high tax States like California in New York. So, I’m assuming that the scenario is that the U S person, so green card passport, and then are living in Israel and you wondering, how can I still be stuck to a state? We see it most often with a state like Virginia, where, so from like the New York and California, California will say, well, if you don’t have a, any real estate Mt in California, waiting for you to occupy, and you are not spending any time in California, and you are a bona fide resident of Israel, then they will probably be comfortable with saying, well, you’re not a California resident similar to the New York.

If it, if you don’t have like a co-op where you have your condo, you have your home, you have a home that’s available. It’s just empty. It’s not being rented out. That’s a key thing. Then New York would probably be satisfied, but there are States like Virginia that will say, well, your last state of residence before you left the U S who is Virginia, and you may still maintain a Virginia driver’s license. Maybe your is still a registered to vote in Virginia. Virginia is, is, tends to be pretty aggressive. They may say, well, we know you’re going to buy a resident of Israel, but we still consider you a resident of Virginia as well. So, when we do, in terms of our consulting has a real, a coach, our clients, you need to survive a tax resident, even if it’s the New York of California, pick one of the eighth States without an income tax.

So, you know, you have Florida, Nevada, Texas popular States and make sure you are registered to vote on one of those dates, get a driver’s license in one of those States hold mail. At one of those States, we can coach you through that so that if there’s ever a dispute, you can definitively demonstrate that you are not still domiciled in, in Virginia, in New York or whatever you are Florida. You are a Texas is the case may be. So that helps, but again, 50 different States for a few different rules. Next question. I’m a dual citizen as well in the USA. I work at Israel but my employer is in the U S and I get paying in us dollars in each month. My paycheck is into my U S bank. Do I still need to file taxes? And Israel first. So, the U S first from a U S point of view, you definitely going to file and pay taxes it in the US, Ariel?

Ariel Katz

Yeah. Is this, the test is not a <inaudible>, but what are you a text? The resident, you can be an Israeli citizen or many of the news, what will not be in touch with them because the outside of <inaudible> to them. But if you have a text that to them, it depends on your income. If your only, you don’t need taxes. Usually if you have other types of income usually means, but not all is that taxes are not as high as even in the US.

Derren Joseph

Okay, great. Moving on. Someone is asking, where would they be able to find the recording later on? I’ll have a copy on our website, which is HTJ.tax We will also have it on our YouTube channel and Ariel?

Ariel Katz

Eh, we will publish it by emails to our clients.

Derren Joseph

Okay, great. Next question. Hi. If my husband is an Israeli citizen and is the primary provider, do I have an obligation to report his income now from a US point of view, if you are not working and your husband who is not US exposed is working, then you don’t have an obligation to report his income. But if it is that you guys have a joint account or he’s transferring money to you, then that may be reportable. Again. You may not be taxable, but I would say to me, definitely be reportable, Ariel?

Ariel Katz

What am I, what the Senate less censor is the balance and showing you all of that? And what are the types of income that you have an issue with the text them, and you have the tattoo income that make you feel the texture of that, then you Need.

Ariel Katz

Okay. And the next question is for you, Ariel it says, I’m just going to read it out because on the recording. They will be able to see the questions. So, I’m just going to read it out. If I make it a Leah and left recently returned after six years, do you get a 10-year tax period or a reel?

Well, you know, I guess what do you call a returning the resident and the veteran with your hands, if you are attending because a white wall you outsource is at a point at least 10 years, you all became residents and you have to go at least 60 years old and turning the resident 10 years or better out. And if you don’t live outside of this is again, your four or five years or five years of tax benefit, but the benefits are not a huge as the Benefits for the 10 years. This is not only the period of time, but you have benefits in the last five years.

If you will sell at a site visit or 10 years, we will be in title for the whole 10 years of exemption. And there is no polymer to be in an inside to the seat with once you go outside and come back in the sea at all.

Derren Joseph

Okay. That’s great. Next question again, about, of the recording, we will be responded to that are ready. We will have it on our website. HTJ.tax and Ariel will distribute it to his clients. The next question is, are there any reporting requirements in the U S for real assets held outside the U S such as real estate and precious metals. So, I’ll, so those separately for real estate, if it is an income producing asset, yes, you declare it and you pay taxes or whatever the income would be. If it is not an income producing asset, and you will hold it in your own name, then Know no reporting.

If it is not an income producing real estate asset, but you hold it to a structure, then yes, it may be reportable again. No, Taxes because it’s not income producing, but just the existence of it. And you hold it to restructure. Yes. Precious metals. If it is that you hold precious metals directly. So, you have access to a vault, and we have lots of clients with vault in Switzerland, in Hong Kong, in Singapore. If you hold it directly in the vault, then Know, if it is that you hold it through some sort of structure or its paper or it’s through a bank. So therefore, it’s an account number attached to it.

Then yes, again is not taxable unless there is a sale, but it’s reportable as an acid that you hold it. If you hold it in one of the ways I mentioned moving on, I didn’t really understand the investment in full. If I have an investment account and a U S in which countries do I pay taxes on it? Do I need to start filing an Israel to, from a US perspective, if you will be based in Israel and you have an investment account, any US guests or the first byte of that cherry because it’s a, it’s an income that’s to write for the US and Israel?

Ariel Katz

You feel like it is that the us had the first bite. We will have to find Taxes the newsletter. And if there was a really great would be higher paid the difference in the us.

Derren Joseph

Okay, great. So again, just your feet and I’m going to be taxed twice on the same dollar. You just pay the difference because of the tax credits that Ariel mentioned earlier. Next question, this was a direct one me. So, I’ll just read it out. If I’m a US realtor and will complete transactions in the US, this Israel consider scheduling and research phone calls work in Israel. So, at this, this is one for a few URL, because I guess this fall into management and control this person who is a U S a realtor, and they are doing research and doing phone calls from within Israel over to you.

Ariel Katz

Okay. Can you play a bit with this question because I’m not sure I understand it?

Derren Joseph

Sure. He’s a, he or she is a US a real estate agent. They are presumably based in Israel and while there is Israel, they’re running the business in the U S so they are doing scheduling. There are doing research and they are doing phone calls, or is that considered to be working in Israel?

Ariel Katz

Well, first it’s depends on how it is. How do you get your income? If you’re getting it directly? I supposed to, of course, we will have to open and share, which is a dealer. If you have to be a self-employed for VAT tax and you have to find the x in his lab, and Israel will tell you that if you have the first bite in his income, because you make it from Israel. If you met this income via in a US company, it’s a bit more complex as Derren and say, it depends on where the management role is. When we do have employees in the U S do you have someone in a high rent and the ways to manage the business than maybe it’s not an Israeli for a company, but if you were the manager of one by one, a hundred percent of the company is during all the, that is a, I will tell you, this is probably in managing your own companies.

So even if it is a company who have to pay taxes on these companies call and again, a lot for what they sell at the beginning, if you have his income directly in a hundred percent, you had to file taxes and Israel, and also, we would not get most cases. They will not get credit or a text is paid in the U S since a <inaudible>. If you really got it is to think of businesses operating from is, this is an Israeli source income,

Derren Joseph

Okay. We have 10 minutes left. So, we’ll try our best to get through as many questions as possible. A lot is coming in. With US, it is really the liabilities for certain pension, a mutual fund. It depends. We need to look at them, you know, and myself was, I will sit, where are the Ariel we need to look at him because under the U S tax code, there is a certain category of investment account, which is called a passive foreign investment company, a P FIC. And with those, the issue they’re not treated, they are treated very aggressively by the IRS, which means that even though there’s no distribution, there’s no liquidity event.

You’re not taking any money out. There was no, you know, no distribution to you. Once there was a gain on the fund inside of that account, admin still be subject to U S taxes. So, there is a tax on the Phantom income just by holding or whatever, the investments in the pension, a mutual fund, it may be taxable on your U S returns. So that’s from the US. I, we need to take a look at it, a real in the Israeli side.

Ariel Katz

You mean usually if it depends on the farm is I can understand more easily or usually exempt most of the time.

Derren Joseph

Okay. That’s great. Okay. Next question. I do have a Korean his style on wet hair and Israel that has, and has had quite a high gain. When do I pay us tax on this from a us perspective, if it does fall under the exemption, then they will only be taxed upon distribution? Otherwise, it will be subject to the, to the Pacific treatment that I mentioned earlier. Ariel

Ariel Katz

If you started working in Israel it would be exempt. Okay,

Derren Joseph

Great. Moving on. I have stocks in the us when I sell them, I pay long-term capital gains into U S or Israel after the 10-year exemption, obviously that stops into the U S U S U S Situs assets with U S derived income. So, the U S will get first bite of that cherry a Ariel.

Ariel Katz

Yes. And that’s a, I mentioned previously your or get an exemption, even after that, you can do it if you bought the S of this year or whatever it is before the end of the hand is good and useful, a little get an exemption even is the venues will end. Okay.

Derren Joseph

That was great. Next question. Can you explain above the reporting group regarding the Bitcoin and that’s a new in the U S tax return? It’s like one of the first questions on the 1040 crypto in, from a us perspective, generally speaking is considered an asset, not a currency is considering an asset. So, if there’s a gain on that, you buy a new sell at a higher price. There is a game it’s reportable. So, is it the, long-term a short-term capital gain or along with T short-term capital loss and the key thing that we Tel would, those that we tell our clients that are involved in crypto, you must keep records? You must keep records. That’s the only way we are able to track the gains or losses from a S perspective RL. Yeah. And he’s like, it’s the same. It’s also gotten to the NASA, eh, in most of the time with so many of us a couple of days. Okay.

Okay. Next question. What about social security between the clear to me, do you know of any relief for us citizens living in Israel? Who I, the freelancers or work in the U S social security?

Ariel Katz

Well, there are the SSN four. This is a, quite a problem. The issue of, eh, social security and the in me. And usually, you need to go to submit is to talk with your company because otherwise you will be paid both the national disability and B talk to me and aspire, as I know, there was not a much of a relief

Derren Joseph

Understood the next question this year, or when do you have to file taxes and the U S and Israel, this Israel have extensions like in a U S so to speak to the U S PI, there are two deadlines If of taxes. If the taxes are due, they do by April 15th, by virtue of being outside of the U S you have a, an automatic extension until June 15th to file the return, which I know seems kind of weird. So, the tax liabilities do before the actual returns, but that’s the way the IRS is. If you can’t make June, then you can apply and get an extension to mid-October and feeling that to mid-December with that’s, you know, we try to get it done by October. So those are the deadlines from a US perspective, IRS.

Ariel Katz

And Israel, if you follow them along without an heir is usually between May and June, or if you use a content thing, is that usually you can receive extension, but at the end of the next thing,

Derren Joseph

Okay, someone is asking about our EU fees. So, I guess they answer you, you need to contact the real, all his team directly, and you be able to work out what the feature for you is in the next one. If I have capital game in the US and I re-invest it, is it considered as an expense? What can I avoid tax evasion in both countries, from it, from the us point of view there and says, it depends? There is something called a 10 31, like to kind of exchange, which has been pretty generous in the past that has been tightened. And that applies primarily to US sites is a real estate. So, if you have a capital gain, but within a certain number of days, you buy another property, you can defer having to pay that capital gain. But otherwise, once you, once it’s a liquidity event and you make money, you need to pay your taxes. Even though you’re going to reinvest it into something else, Ariel?

Ariel Katz

Usually when it changes assets, we usually start buying and selling real estate. That’s really in the us and things that are getting an exemption in US in Zambia, you can go to a wedding, but usually do not exemption. It’s also something we have here instead of what we calling broke. And sometimes you can make the condition. We see also the one with the Israeli condition, but it, this is something that you need to consult before making the egg, because otherwise you may end up with an assumption in the US and then the next payment in Israel, eh, and they will pay for the next again. And when we say it’s selling the U S so we pay the text quite a while. So, this is a problematic issue. And in order is always to consult with Paulo and making the section.

Derren Joseph

Okay, great. Next question. How can I reduce in a tax wise manner or a gas tax efficient amount of my capital gains, I guess, you know, it really depends on the asset class? It depends on your situation. It depends on where the asset is situation, what your situation is. So, I think you’d need to consult a tax team to, to get a specific answer to that question. We have 10 more questions we can get to all so we can see what we can do on a scroll. And that was a glitch from, from zoom. One more question. Is there any benefit as an Israel tax resident to investing in a Roth IRA, et cetera, we’ll the tax exemption and the U be canceled out, but having to pay taxes? And Israel this one for you Ariel.

Ariel Katz

And if you are in the exemption period, the dentists will be exempt and Israel otherwise she will not benefit for this US Benefits and yes, we will end up with band taxes and Eva. So, the same part of my, I introduced before we go Israel exempt income. And I will say the other side of it when you have an US exempt income, but it, you need to pay in taxes on it.

Derren Joseph

Okay. So, it seems as if we’ve come to the end of all less. Oh, there’s one more question. If you’re not sure you will be in Israel forever. Would the Roth IRA potentially be worth it?

Ariel Katz

Ariel I’m not actually sure. What is a Roth IRA funds to do it because then you decide you usually pay the taxes when you, when you sell the assets and it, and if you make it, if you invest VI funds, it depends on whether it’s in terms of parent fund and then you pay on instead of it, or is it is not a transparent funds? And then you pay or only when you sell it. And so, which is the band.

Derren Joseph

So, it, and so in the U S I guess they have different ways of looking at retirement funds, but just being very, very general, the, those that you fund, there is a retirement fund, and you can fund with pre-tax income, like a 401k. So, you get a tax exemption to your, you reduce your taxable income, you put it in the fund, but once you retire and you get a distribution from it, it will be subject to tax of whatever your marginal tax rate is at your point in time in retirement, or the other one would be like your Roth, which you fund with after tax income. So, you get no real tax deduction. It’s already taxed money that you’re going to throw in. But the, the good thing is that when you pulling it out, it should be all the things being equal. Tax-free, she’s written that it’s like a Caribbean has gentlemen

Ariel Katz

<inaudible> If parents, or is that it gets purposes for <inaudible> and then you will only need to pay Taxes once it’s sold. Then if you will live Israel yearly, you will not have to pay. That says, although you have one, for me is an exit Tax. And in certain States to consensus, when it, if you leave them with some assets, you will need to pay the tax or to the texts, to the date that when we will sell it. So, you may have some Taxes exposure on this exit test, but it’s not a very high tech.

Derren Joseph

Okay. And with one minute to go, there was one direct question to me, which I will read aloud. What other document we need to provide other than a w nine or 10 99, when we file our taxes. And Israel for the first 10 years, as a returning citizen, still working for a U S employer.

Ariel Katz

For the first 10 years, or not have anything to do that on your income. But again, it’s a salary which is regardless and Israeli, I usually have to bring a W2 US that’s the term. And you know, US for Israeli in advisor to understand the model and a lot of the tech space in the world. And by the way, at this point, if you leave, so that Israel ends, you spend some of them in the U S or not. If you have two weeks in that one can be US and you can get a body or the exemption would be simple.

Derren Joseph

Okay. That’s great. I’m afraid we’ve come to the end of our time period. Thank you very much. And again, HTJ.tax you can reach out to us via that website at Ariel.

Ariel Katz

Thank you very much to everybody for joining us today. <inaudible> to go and we will share with this presentation when we are now quite some. Thank you very much. Bye-bye thank you.


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Table of Contents: [ HTJ Podcast ] U.S./Israel Taxes For International Entrepreneurs & Expats – 4th February 2021

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