VOICE-OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax.
DERREN JOSEPH:
And good evening to you all. And for those joining us from other time zones, for example, us good morning or good day, depending on where you are. So welcome to our weekly live stream. So every week we had an Htj.tax, we do a live stream on a international tax topic of interest. And this week we have the honor and the privilege of welcoming again, Ariel Katz. Who’s going to talk about Israel tax and Israel related tax issues. I know some of you sent your questions in advance. Thank you for doing that. Those who have not yet done. So feel free to type in the box below and we’ll get to them in the order in which they are received for those who may be new. And I see some people joining us who have been here before, but for those who are new, please note that nothing we say here should be construed as advice. We talking about general tax principles in very broad terms. If you want advice that is specific to your unique circumstances, then you need to engage a tax professional like Ariella myself, who can walk you through the process and dispense with advice that is relevant to your situation. So right now we having a general conversation, general principles. You can treat it as educational, but you can treat it as entertainment, but it is not advice.Just want to make sure that we get that. So without further ado, I hand you over to Ariel. Oh wait, please do know that this is being recorded. If you do not want your image to show up in the recording, please feel free to keep your cameras switched off. Okay. Ariel over to you.
ARIEL KATZ:
Thank you. So is this a little like two or three minutes and the Israelis are not sweet speakers. So maybe two, three minutes. We’ll have a six to ten more clients to join and then we can start. Can you see my screen. So let’s just say another one minute.Okay. So hello again, everybody. And does a follow up, thank you so much for organizing this Libby now. And once again, it’s a pleasure to do this with you. I want to stop the first items from my side and then down the side and it fails to follow. I want to introduce myself and my office to people that are not already. My clients and participants are not. So my name is Layla, the content and also Islam. Eh, I’m part of the county office.We have offices both in Jerusalem and interrogate office was established 1987. And we were among the 40 biggest in Israel, which make us too, not too small and not too big, meaning that we can be like a one stop shop for everything related to text accounting or the newsletter. In my hand, on the other hand, we’re not big meaning that our clients are not getting lost here in always support one of the partners and get installed and bit about myself. So I said, I’m an tax lawyer. I’m teaching in the university for the ninth year. Then also the IDC, not Selia gold medal for the ICP. Yes. And I filled in the press quite regularly. So let’s jump directly to the point that I think, or is good do to discuss and to talk about when we are talking about Israeli and us taxation, the sales item that may be relevant for some of our participants is the benefits related for first time is like resident and returning residents and specifically veteran with them.If you are a first time is a resident or someone has been outside of Israel for a non was not an easily fixed that for at least 10 years, you are entitled for 10 years of exemption on both techs on important on your non income here. It’s very important to emphasize that this exemption, and again, it’s also context and important only, income. This was not generated for you. And to make it clear if you are receiving salary from a non company from , but you work for a US company and you will receive a salary. This salary is regarded as a salary that was generated from his letter, need to pay tax on. However, it, you will receive in dividends from this US company. This dividend will be tax exempt because dividends for non-athletic companies. They’ve got from outside Israel. So it’s always smart to check and consult and how to receive the income from your, it also sit the one for the foreign pair because of the symphony doing the salary or issuing an invoice for visa for the US company will result in pain texts and report. You feel, I’m not sure that you want to stay there in Israel, but you say, Hey, maybe I want to go back to, I am sending you for good. You can always request accommodation. You mean in a year that it, you can go back to the US, really, during these 10 years of exemption, eh, many of my are not starting now tens of exemption, but rather what the end of the 10 years of the exemption. And this is another point that is very important to get a good consultation in, to understand how to organize things before the end of the 10 years period. Because if you’re acting before the limit of the 10 years, you can receive dividends. You can change the stock, show your companies on your business. You can make sometimes fully exam to set experts on some shows of companies without any exception, but just a minute. After the end of 10 years, you are partially or fully the Israel. And then another question is always realizing when this group of the 10 years is starting to click. And it’s always something that we, we check in from time to time. We also add a text and legal opinions on this point, some other US, and he’s like succession issues is the situation that an Israeli person is also is a text resident. But if you’re holding a us passport, you are citizen in the United States. You’re also without it it’s the us textbook, but it doesn’t for US tax purposes. This means that both of the countries want to put their hands on your income and detects it. And in what happens with respect to income tax, we have quite a good mechanism of antidiabetic station, where the mechanics of the tax credit. On the other hand, we have a problem with respect to the two of looming and national security in the us. We know that if you walk in an Israel necessarily employed, you will pay both and nationals to do it in the us. Of course, we’ll have some solutions for this problem. One of them is to walk via an Israeli company and to receive their money from your company as an employee. This is one of the solutions out of other social sports. More, a self employed is walking. What we put in is when it’s a sale, it’s not like a straightforward solution, but it can help you not to pay twice for me. And moving forward. One problem that you have speak to tax credit and succession from gloss. The countries is with respect to employees, option taxation, and the problem with the special employees, the perceived option from their employer, and now want to exercise these options. Instead it is that Israel and the us walk the same way with the spectrum, how to text in auction in the us. The IRS is looking on the vesting periods, the time in which the option got vested. However, the poets way, the ITA Israeli tax authorities looking at it is they’re looking at the time when you exercise. Okay? All set it, meaning that let’s talk about an example in which an employee walking the us for four years got all of these options vested in the west, came to Israel at the end of the four years. And they, after that you sell is exercising or selling. The Optum US would want to tax him because the vesting period was inside the west. On the other hand, we want to text him because the exercise was dying while being in Israel. And therefore, if you are an employee that seems auction and you are doing some kind of the location, it’s all on a sparkle consort before you are changing and moving forward or down or the word wrong because otherwise you can get yourself into a tax resident, maybe between these two countries. If people here are not aware of the Israeli Israeli’s tax regarding who is considered an Israeli, that is quite complex. Ultimately we’re talking about the center of life, meaning that one to check and to understand where is your send-up flag? Where is your wife or husband? We’re all chill. And when we do go to war, eh, if you are a religious person to which synagogue or church are you going, et cetera, et cetera, beside the steps. So Dave checking tests, meaning if you bring in Israel more than half of the year, or if you’ve been in Israel on an average more than 142 days in four years, each year, they can meet you. And he’s like, excellent. Then, eh, coffee, this just last week. The idea of some ideas that they want to make the test more simple and more clear, we need to make it like it was a false test. The test is quite complex, and this is a very non-clear issue with a person is always not excellent at that. Of course, sometimes clear up I’ve been in Israel. I didn’t visit visit since the beginning of the core assets. We declare that I’m an , but for people that are traveling and moving in is, and have like life both here and another Catholic, it can be quite complex. I want to talk now, but the issue of investing in foreign companies, I want to jump directly to the problem and maybe the solution of investing in, in LNC companies by Israel most of you know, eh, most of the industry companies in the US regarding expert company, meaning that the income go right through the company, into the shareholder or supporters and these decks by the hands of them. However, Israel generally in non-Islamic company can not be regarded as a sponsor. But on 15 years ago, I gave published a circular saying that with respect to LLC, we will look if the LLC is transparent, if the shareholder will also in Islam, the power is that they agreed. Look, the LLC is transparent, but not fully transparent, meaning that the IPA watch at least until recently was that for example, you cannot upset the income of one LLC for the loss of another meaning that if you had the in the US, one is making income. The other one is having losses. Once the profit one is having losses in the us, you are setting that and you don’t pay any tax in Israel. You cannot, according to the ITA position, you cannot offset this informant loss. And then with you paying tax, and these are ending with your brain actually diabetics because next year, if they use companies make profit, you will find yourself eventually paying bought in. Is that in the us here, we had just this week, quite a major development. When the ITA published there, it talks about many, many issues, but also to these tissues and they quite intimate that their position is not quite lucky and they want to change it in the set. What other did publish the access that they want to change it for now, moving forward. But in my office position, in the way we see it, we can also take this position. And actually we already took it with respect to some of our clients that you kind of in his, in the other before. It was a bit aggressive, not too aggressive, but a bit aggressive. But now after that day, publish the onset. What I was saying that this is the right way to do it. It would feel more comfortable with this. That’s another issue that, eh, easily takes that investing do S to talk about and think about. And also every us textiles it to think about is the insects. You mean the aesthetics, how to do, if you are a us person, eh, you act a quite high, a limitation of a mom that you will not pay estate tax on, but if you are not in use that person in your forum, we need just an Israeli. You have above what’s more a mom. If I report at least 60,000 US dollar in own US stocks or everything like that. If the person dies while in United States and the wa why the freeways solve this problem, one of them is to walk, to invest the company. The other way is to walk. We are the last literally a US past mechanism. And the first solution for that is to actually buy a life insurance life insurance that will cover your future potential, eh, tax. Once the person in that, in other eh, issue. What’s the bird issue. When they talking about Israeli in us succession is the management and a test Islam. If you open a us dumping, almost all of the time in Israeli clients telling me that they want to walk with site. They want to open a shop or any other business to set in the us. They go into site, they open a shop or something like that. They also can pay quite low amount and to open a Delaware company. This from here from Israel and this, if people think that well, it was so easy. Why are you not walking? Are you stopping? Everything is so easy, everything. So in these simple taxes, you have to understand that in Israeli, a person in quarantine, a us company, if this company is management, the management of this company is Israel. Meaning that the sheriff , the employees are employees of this company will build a God in Israel, Israeli company. And therefore it’s usually not too smart to walk in this school with these kind of companies. And if you do need this kind of you’re stopping it and everything is done, this is already smart to also have US in Israeli entity and to make a, some kind of mechanism between these two companies in law on these types of pricing, sometimes of study, or just please at the beginning, also pricing agreement between these two companies in order not to be aligned and not have a problem with the IRS. And another problem that US person use that person that are Israeli in software form is the succession. The possession of exempt is like there are some exempt that inform it easily upwards, or some kind of benefits in Israel that I will give a few minutes that are not exempt in the us. For example, in Israel, you can sell an apartment in Israel in if it’s sorted apartment it’s usually will be exempt for betterment , but in the US it’s many times we not be exempt. And then you to the tests and other staff up, for example, in other funds that people in Israel are regularly investing in this taxes exam pass. And for US person, it can make a wider headache of reporting and sometimes paying tax on this, in these fonts. And in this issue, it’s always also smart to consult with your US succession consulting and to understand how this transaction we be reported and how much you pay in the US, even though the thing is that it’s food, and this is everything I want to talk about today. I will pass it to move forward. And at the end, we’d have time for questions once again. Thank you everybody for joining us today and Derren may continue.
DERREN JOSEPH:
Thank you very much, professor. Sorry I realized that at the beginning, I didn’t address you by your proper title professor. I really can’t. So thank you for that comprehensive overview. And I see we have some questions still coming into those who just joined. Please feel free to type your questions in the box below and we’ll get to them in the order in which they are received. Now, typically I would go through a deck on the US tax side, but I think it’s probably more efficient if we just jump into the Q and a, because these are issues that you guys specifically want address. So without further ado, I go to question number one, in the order in which they’re received. Thank you for sending them. So question number one. How, how gains or profits from crypto treated in the U S versus Israel? So I’ll comment on the us side and in the US we have two way sets of rulings. What actually the first one is like a notice. This is a 2014 notice as we, I think there were two in 2014, there’s 2014, that’s 21 and 2014, 16, I think. And then the most update one updated one we have is 2019, 14, which is a revenue ruling. So essentially crypto is treated like any other assets for all intents and purposes. So if you’re going to sell it at a price higher than what you paid for it, that gain is subject to capital gains taxes. So I’m not speaking about crypto traders. We have some clients that are algal traders. We’re not talking about that. I’ll go trading or trading as a completely different conversation, just investors, right? So if it is, you are an investor then from a US tax point of view, you subject to capital gains. Now, in terms of what constitutes a taxable event, we’re looking at obviously crypto to Fiat, obviously, right? But what is less well-known is one crypto Turner. So crypto to crypto can be a taxable event. Spending crypto to purchase goods or services can be taxable event. And an encrypted is income. Obviously, that, that, that is definitely taxable in terms of the valuation methodology. Historically, people were very much erring on the side of caution. So everyone was advocating FIFO first in, first out, but right now the children run the service. They would accept Pfeifle high for life. So that’s in first out, highest in first out or last in for a scout. So, you have some choices in how you, you would value from a US side, professor?
ARIEL KATZ:
So thank you in is almost everybody that you do have quite the same in Israel, but in Israel you cannot decide between the fish and leave for you must go before. And for a Kipling investors usually positive the, to is so high. Most of the teams point investible want to check the tech, the LIFO option, but thing is that it’s not an open in Moscow or the other stuff that pick up against every change. One piece to another is X effect. If you’re receiving give to business info, then it’s in business income. It’s not a cup, but if you other after that say the difference would be the capital gains, everything else is.
DERREN JOSEPH:
Okay. That’s wonderful. Thank you for that. The next question, and I guess it’s following on from that. Are there any tax planning opportunities available in jurisdictions? So in the us, especially now that we’re coming to the end of the, the tax last calendar year, a loss harvesting is something that some people engage in. So you can offset capital gains to the extent of capital. You can offset the capital losses to the extent of any gains that you may have. So some people take that opportunity to, if you, one coin may have gone up and another coin may have gone down in value, you can recognize that loss and you can actually to maintain that position. You can buy it back in early in the new year. So if it came to, if it, in the context of securities like stocks and shares, you couldn’t do that because of the wassail rules. But as at this point in time, the Wasi rules do not apply to crypto and people take advantage of that. So that’s a common strategy that some people use now in terms of longer term strategies to deal or to mitigate the taxes we have. It’s very nuanced. So I wouldn’t say this is a one size fits all from a us perspective, but opportunity funds. So under President Trump, we saw the creation of what we’ll call, what have been called opportunity zones, and the opportunity funds set up, invest in opportunity zones, you know, qualified opportunity zone funds. And you get, if you hold it for, I’m being very simplistic. Now, if you hold it for like five years, you can mitigate some of the capital gains at this point, I think like 10%. But if you were to keep it in the fund for 10 years, you can potentially mitigate all the capital gains. So there’s a lock the period. It is very nuanced. It is very convoluted, but it is something you may wish to consider from a US perspective, professor?
ARIEL KATZ:
I have too much empathy. You’re expanding that to do anything that you can do. And I assume most of the vessels are not in this position. If you had losses, it did not yet realize you can always send and buy a minute after the field. And then you can use this loss for other capital gains, and we’ll set it one, this and other, but this is basically everything you can do.
DERREN JOSEPH:
Okay. Understand, moving on to the next question. Okay. How a foreign companies treated for us tax purposes? Well, in, in the presentation that was touched upon, but essentially from a US tax perspective, if you are a US view, a US tax exposed, you are required to disclose your investment in foreign companies. If it exceeds, if it’s 10% or more, that’s a certain level of disclosure. If it’s 50% or more, and it may be treated as what we called a CFC, a controlled foreign co-op additional disclosure is required. If you invest into foreign company, it may trigger a form nine to six. You need to disclose the investment into that foreign company. If you have an interest in a foreign partnership that also needs to be disclosed, if your interest is less than 10%, it’s possible, it may not need to be disclosed, but it depends on your overall financial position, because it may have to be disclosed in something called a form 8938. So it really depends, but essentially it’s about disclosure. The IRS wants to know what you’re doing outside of the US. So with international tax, from a US perspective, the emphasis is less on revenue collection and more on data. Data is really important to the, to the service. Okay. So that’s, that’s that question. I hope that helps. I hope that answers another question again on foreign companies, someone is asking about anti-deferral rules. So this is quite convoluted and it’s quite detailed. Sorry. So I’m just touching it lightly. So if it is the, especially your control foreign Corp, so US exposed and you have a company in Israel or anywhere outside of the US, of course it needs to be declared. Now under certain circumstances, some anti-deferral rules may kick in which means that typically the default position is that you don’t pay us taxes until that company makes a distribution to you, either in the form of a salary or bonus consulting fee or dividends. But there are certain circumstances where you are deemed to have received the distribution, even though you did not. And those are triggered by certain anti-deferral rules. The oldest of which I think it started back in the 1950s or sixties Subpart AF. So that has to do, I mean, generally speaking, just painting very broadly. If you have a company incorporated in one jurisdiction, but you’re doing business in another foreign jurisdiction that may you need to speak to your tax professional. It may trigger that support Fbars rules and those passive foreign investment company rules. They came in the 1980s and the President Regan, and it was apply if you have more or less, less sort of a fund structure. So you’ve established a company outside of the US, and that company generates primarily passive income, so unearned income. So it may dividends. So maybe a holding company, for example, an investment holding company, then you may need to take some advice around the PFIC rules as they can be pretty punitive. And then more recently in 2017, you had President Trump’s tax cut and jobs act, which created a food category of anti-deferral rules, which we call guilty. It normally won’t apply in the context of an Israeli company. It mainly applies to lower tax jurisdictions. So low tax jurisdictions, like your Caribbean islands, like Singapore, where I’m based in Hong Kong, basically the lower tax jurisdictions that that may be triggered. So again, the principle is the same. These rules are crafted in such a way that you are deemed to be getting money from them, even though you didn’t actually constructively receive any money from them. So it’s a good question, but it’s very, very involved. And you may want to, you can reach out to me directly or to your chosen US tax professional, to discuss that further.
Next question again, sticking with this company theme, and yes, for those, you can continue to type questions below and we get to them and they own and return receipt. So can nominees be used to avoid us tax declarations? Of course, the IRS has figured this out already. The way the rules are when I spoke about the 10% threshold and 50% threshold, it’s written in such a way that it contemplates that some people would try to use nominees. So it speaks about value of voice. So even if you use a debt structure, maybe you’ve just let it’s a moon, or even as not equity or use a nominee. Once you have influence in that company that exceeds 10% or 50%, depending on the threshold, those rules would apply. So not exactly if someone against foreign company.So a US person is married to someone. Who’s not a us person. If I transfer,if my non US spouse is holding shares, do the rules apply? Okay. So they’re asking about attribution rules. I’m just cutting to the chase. I get it, I get the gist of what you’re asking. So, because some people, again, the IRS knows that people try to avoid certain thresholds by distributing shares to family members. So to get around that, or to neutralize that little shot, Digi attribution rules are created, and those attribution rules was tightened on the president, Trump in 2017 as well. So previously, to some extent, if you had a non, if you had a non American spouse and that anonymous, second spouse has some of the shares in the company, which you also hold shares, then your shareholding would be added together. But as of right now, unfortunately it will. So whatever, if you hold 90% and your non American spouse has 91%, then you constructively may be treated as owning 100% of that company, even though your spouse who holds 91% is not a us person. So attribution rules do apply under certain circumstances would non American spouses. You may want to, again, speak to your preferred advisor to take a deeper dive into that, because of course there are a lot of implications to restructuring you holding and, and whatever. Thank you for that hope. That helps next question. Okay. As a self-employed individual, and I believe the professor did answer this. So, but you know, it’s good that you asked it just, just, you know, because you need clarification. So as a self-employed individual living in Israel, I want to know what is the best way to organize my business and work so that I can limit the self-employment tax that I need to pay to the us in addition to what I’m paying in Israel, professor?
ARIEL KATZ:
Okay but then draw a second blood. Then you would pay in contents only here, or maybe it’s something to do this, but this will not be a tax credit, but you will pay both and Michelin on security in the rest, which is why it is that it’s a destination. So the solutions out, if you’re making enough money to justify walking via an Israeli company. So this can be a solution for you. If you’re making quite a low amount a lot, sometimes what you can do is to receive the income into another company and then I’m it outside from dead in a salad asleep in Israel, for example, and companies that are called the invoices for employees, the Ida and me not really like stopping it, but if you are paying you is like they will not have too much problems with you. If I’m connecting, what is just as with the previous question, if you have a spouse that is not used to it, sometimes you can open the business on this spouse and the spouse for, this is also a solution if only one of the couple is the US.
DERREN JOSEPH:
Okay. That’s great, thanks for emphasizing that point. And unfortunately there is no totalization agreement between the US and Israel, like is between the US and certain other countries. So it does make it unnecessarily complicated. So yeah, we get that. I’m looking at the last question and that particular list of questions that we got, what is the most effective way to save money outside of an IRA? If I’m able to max out my IRA every year, how else can I invest in an effective way? Self-employed 401k. Okay. Thanks for your question. But that is from, you know, it’s a kind of tricky one to answer in the sense that everyone’s situation is different. So you’d probably need to sit with a financial planner who understands your situation inside out and understand specifically what your, what your goals are, you know, are you saving for just retirement? Is it, what about your kids’ education? Are you looking at a college fund as well? Do you have any medical situations that you need to plan for as well? And basically your unique objectives will drive the construction of your portfolio and we’ll help you balance a portfolio that would meet your objective. So I don’t think, unfortunately, I’m sorry. I don’t think this is a forum for this kind of financial planning, but it’s a good question. And I think you, you should really need to find a qualified financial professional to, to help you navigate through this, especially now that in these uncertain times where things are very dynamic. Okay. So I I’m moving to these other questions that I got, and yes, for those on Facebook, I am seeing your questions. Continue to answer those questions. I’m just going through the questions on zoom first, before I switch over to Facebook banks. Thanks for your patience. Okay. So I have an inheritance from the US some of it I will leave there and some of it I will bring, hey, I guess to Israel, I file US taxes. What do I do about my Israeli taxes, professor?
ARIEL KATZ:
It’s so fascinating to understand what is your status? I mean, you can go on benefits resident, y’all probably example 10 years just in Israel. It takes doesn’t that you have to report and pay taxes since the data will save you. And to start from this year to pay to report and not doing so and be immuno fast, or it’s a must to go and pay tax newsletter. Of course, first we’ll pay the taxes in the US, then it will add if anything will need to be edited.
DERREN JOSEPH:
Okay. Okay, great. Another question. I think it’s from the same person, I have a pension from the board of ed board of education in Israel, and I get the minimum social security from the US is there a problem from a us perspective? I see no problem with what you’ve described, professor?
ARIEL KATZ:
What’s on the farm. I see the question is, yeah, sometimes it’s gone in kind of a limit of the minimum. So just a few a day, maybe. I dunno. It depends on.
DERREN JOSEPH:
Okay. All right. Great. Thank you for that. Okay. So from another person, I recently moved back to Israel after five years in the US, as for now, I am not sure if I will stay here or move back there, given that situation, what would you recommend me to keep my us bank account active? As long as I filed my taxes annually on both sides. So I’ll just make a comment from a us perspective. Well, again, we, you know, I don’t know about you your situation, but assuming that you are a US person as in you have a US passport, or you have a green card, so you need the green card test docs as per such in 7071 of the tax code, then you are continued to file your taxes, even though you reside outside of the US so it’s not a function of having a bank account or not by virtue of having a passport or a green card. You still a US tax person, regardless of where you reside on planet earth. So you still have responsibilities from a US tax perspective. If you do not have a passport, a green card, and you were in the US and a work permit, and you surrendered that, and you properly handed that over and you severed that situation, then you don’t need to worry about us taxes on you, worldwide income, only US taxes on your us source income. So you, you can keep your US bank account the interest on that bank account, maybe something depending on how much isn’t it, of course, maybe subject to some withholding taxes. But other than that, there should be no issues. Professor, do you a comment on an Israel from the Israel perspective?
ARIEL KATZ:
Not just the question on what to do to look at the bigger picture. Since you are more than four years outside in Israel, usually for all of these five years. So you don’t have to vote on your US in the future will be in the US. However, since Israel in less than six seals is that you will not build out. It is a returning residents. I mean, you will not be entitled to any tax benefits other than not paying tax on the time being the US. Is there a set, if you have any income from this bank account interest dividends, if you own, or something like that, you have to pay tax on. It also is, for example, if you have a capital gains, probably not the newest, that’s probably your use, then we’ll exempt you from paying tax and us, but then you have to pay tax on it. The newsletter, if you’re just holding in your current account in the US that don’t have any income, you don’t have to report on this, that this is your only US connection. Only not newsletter connection. And you are an employee then maybe you don’t even have to file a Texas newsletter or check this point. And maybe you don’t have to file the taxes newsletter. It’s all, if you don’t have any incontinence.
DERREN JOSEPH:
Okay, great. I hope that answers your question. Moving down the list of questions here on zoom. Okay. Someone was saying that they joined the livestream, that’s okay. Everything is going to be recorded, and it will be available in quite a number of platforms on our website. She did our tax. It’ll be on a Facebook group. It will be YouTube, LinkedIn, Amazon, Apple iTunes, SoundCloud, Podbean. So probably like over 20 podcasts platforms. So basically wherever you get your preferred podcast, if you have a look for Htj.tax you will find this recordings. So don’t worry that you missed the beginning. You can catch up on your preferred platform. That helps. Okay, next question. Okay. Forgive me for not pronouncing this properly. Someone started to watch Lummi and then they say dash made Aliyah within ten-year period, and then heading back to the US foot job. They’re not clear how long shoot. Okay. The person’s not clear how long they’re going to be moving to back to the US is there any way not to pay the bit you out it’s fairly sizable.
ARIEL KATZ:
I’m not trying to stand till this person may talia and then came back to the US and now having income from the US and asking whether else should pay this is the question?
DERREN JOSEPH:
This is my understanding of the question. And if we’re not understanding you correctly, could you please correct us? But that’s my understanding, yes.
ARIEL KATZ:
Okay. So, so you know, not to understand the answer, need to understand it in Israel, you have your status for the ITA in context, and you have the status, meaning that you can be an easily is a resident in context and the other way around. So if you are an easily , you probably should pay on your known Israeli income, which a some point you need to understand that usually the way the is that they are taking your reporting to the in context and get information from there. But if you don’t have to file any income tax newsletter, because left is like compared to the US, probably they would just ask you to pay the minimum. On a month of 170 seconds left, some will review that they will ask you to pay on your us income, but usually they’re not doing so. And after five years as an outsider is that they will cancel your Israeli status. And you will end up with this pain, this 170 shepherds a month, basically it, and you need to know that if you start us with a Doppler with cancer and you can request to Penn state, even before these five years, when you will go back to Israel, you will have to wait six years in Islam without going out to pay without well check-ins before you can receive any medical treatment, freedom, couldn’t go to what the peninsula or in hospital, without beds for that, you would have to wait at least six months open. We’ll talk in seconds. So it’s not always because you need to understand that. If, for example, you think that if it’s something bad happen to you, you jump on the airplane, go to an Israeli hospital. If this is the circumstances it’s better and you don’t have like a very good US Medical insurance. You probably want to save your dopamine status.
DEEREN JOSEPH:
Hmm. Okay. I hope that that answers your question. If not, please feel free to type in the box below. This is for you guys on Facebook. So we are seeing your questions going back to zoom because I’m trying to respond to them in the order in which they have been submitted. Right? So I have a teacher’s pension and Israel and get social security. I was told that US social security would be lowered because of my pension. Is that true? From a US perspective, I’m unaware that your social security payments would be reduced because you are receiving from somewhere else, but we’d probably need to take a closer look and back to really understand the nuances of that,professor? Are you familiar with a situation like this? So I’m not familiar because your social security, your, your social security benefit from a us perspective, it’s a function of how much your contributions to your social security account, right? So I I’m unaware that your benefit or your returns. So the benefit of your contributions would be reduced because of you having a pension somewhere else in another country. So I don’t really, that is the case. Next question, also here on zoom, how exactly unqualified really options taxed differently between the countries and does the difference in taxing mean that I pay tax twice? In other words, will I need to pay both American and Israel is really taxes for unqualified options. Professor, I think you did touch on this already.
ARIEL KATZ:
Yes, well, we have, most of them are the saving the option under section 102, and the current position of title eight paid once you exercise and , but the current of the IRS is that you pay with this means that if you are vesting in Israel and exercise in Israel, you will probably okay. If you’re investing in the US and also exercise in the US, you’re probably okay. But if you vest your option was vested in the time you make the allocation and then you can lose. And then you exercise. You have quite a problem here, eh, and can be resulted in pain wise. You have to check with your consultant the specific way that it’s went. Eh, sometimes we have solutions for that. Sometimes the solution is to take a position. Sometimes the solution is to go to a ruling with the ITA and it works in the past several patients. But generally speaking, if you vested in us and exercise and we have a problem, we have to take care of.
DERREN JOSEPH:
Yeah. So just to add to that, we, I haven’t dealt with any client with Israel treatment, from a tax perspective of options, Israel versus the S but I’ve dealt with a US versus Singapore Holland versus Singapore of Holland versus the us. So it is, it is something that comes up a lot. And, you know, just to, just to echo what was already said, planning, planning, planning. So sit with an advisory team as soon as possible and go through the details, because with this stuff, the devil’s in the detail and, you know, you need to be proactive. So before you move, or before you do anything before you exercise, just sit with someone and go through the details. All right. Okay. So, so the follow-up the actual American tax must be plate. Yes. So your professor was absolutely correct. The IRS looks at the vesting. So you, from a us company, they’ll give you a vesting schedule. That’s pretty standard tax document. So you will get to see exactly what year something would vest with period investing. And therefore when they’ll be a US tax consequences, the results of that. So, yes, it’s driven by vesting. Okay, going back to Facebook. Okay. If I convert a 401k to a Roth, I pay ordinary people, ordinary taxes, capital gain income. Then how later rod distribution is handled in Israel. Okay. So from a US tax perspective, just, just to kind of create the context that basically I’m, I know I’m being really simplistic, but the two categories of retirement plans from a US tax perspective, those in which you can invest pre-tax money. So you reducing your taxable income, but on the end, when the money gets distributed and it will be subject to taxes. So you pay tax when you pull it out. So the, those that you invest with pre-tax money, and there are those that you invest with after tax money. And of course, when you put in after tax money, the upside on that is that whatever happens when you pull it out, there’ll be tax-free right. So the Roth is the one with after tax money. So you’re going to invest after tax money in the Roth. And so this person is asking if they convert from a 401k one with pre-tax money to a Roth, what are the tax consequences? Well, from a us tax perspective, it is something that’s commonly done that yeah, people regularly roll a traditional 401k into Iraq, especially right now where most people are betting that we, in an environment where taxes are going to be going up, you know, in the short to medium term, maybe even long term, we in a rising tax environment because of certain factors that are in place. So people are saying, you know what, I want to pay the taxes now, rather than waiting for the down the road and paid when I have to pull stuff up. So yes, you can convert in and you can move them into a raw and you pay income taxes on the money in that year. So yes, you’re absolutely correct. It’s particularly in our experience, we see it being particularly beneficial with the higher income earners who are normally permitted to invest into a Roth because of the phase outs. So, no, you know, if you earn more than a certain amount, you, you, you can technically put it into a row. So this is a backdoor, another way of getting it into rock. And right now, because of the rising tax environment, people are saying, hey, roth, right. Okay. So that is from a US perspective, professor, from an Israeli perspective, assuming that this, this lady is, is really exposed as well. What would be the tax consequences of withdrawing from a US, I guess, I’m just imagining it’s like an early withdrawal and then putting it into another retirement vehicle in the US any comments?
ARIEL KATZ:
We do find and investing in some kind of US.
DERREN JOSEPH:
Yeah. So from one US retirement fund into another, but w but they, from a us perspective, by pulling it out of this one particular fund, which is the one with that you put in pre-tax money by taking it out and putting it into the other, you have to pay income tax on it from a US perspective.
ARIEL KATZ:
Quite complex, but you have to understand if , we need to do, to have to pay taxes on it. Also, you have some exemption receiving incoming. If you reach retirement age, for example, may be entitled for 35% exemption on death. On the rest. You will probably have to pay tax and we’ll get credits in the US so maybe you don’t have to anything else that extension and the credit you have to check it specific.
DERREN JOSEPH:
Okay. That’s great. So we have the top of the hour, so I’ll just allow one last question, sorry for those who ask other questions, but, you know, time, time is time. So this one last question wa distribution. So again, this is money that has already been taxed on new weight into this retirement fund. So let’s assume some one is, I guess, the Israeli tax resident at that point, and they’re getting a distribution. So withdraw from the us retirement fund, which has already been taxed w tax on the way in, would it be taxed in Israel when the pulling it out?
ARIEL KATZ:
Sure. I understood.
DERREN JOSEPH:
Right? No, that’s okay. So w w remember we saying that the two type broadly speaking, two types of us retirement funds, so the, those that you put in pre-tax money just to reduce your taxable income, and then those that we put in after tax money. So money that’s already been taxed, and they, the Roth is the one where you put an after after-tax money. So, so you put it out to tax money. And from a us perspective, when you pull it out, the money’s already been taxed and you allowed to pull it out once you retire at whatever age and the gains, because it would have been invested in the fund. So the original investment plus the gains can be pulled out tax-free from a US perspective.
ARIEL KATZ:
And now I think that in December in easel, if you can show that you’re the type of the first investment, this of course will not be taxed again, something that you want, or the incomes after that, you have to pay tax.
DERREN JOSEPH:
Okay. I thought, so this is something we have to do in other jurisdictions, like Spain (Spanish taxes for USA expats made simple. Contact our experts for reliable assistance), Portugal. Yeah. So we, so in other words, we got to bifurcate the, the, the money that’s being pulled out and to say, how much of the, your distribution and whatever particular point in time is your original investment and how much is doing depending on the investment. So the return will be taxable by Israel. The original investment that you put in, which has already been taxed would not. Okay. It makes a lot of sense. I hope that answers your question on Facebook. So we’ve come to the end of another exciting session. We do this every week and we will be doing another one with a professor in the new year. So thank you for joining again.
ARIEL KATZ:
It’s always a pleasure. Thank you very much, everyone.
DERREN JOSEPH:
And feel free to, if you rewind this presentation back to the slides, professor’s contact details with it. If you want to reach out to him directly. So thank you for joining. See you next time.
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