Livestream- US/ Israel Taxes for Expats (18th May 2022)

INTRO:

This podcast channel is about you - successful international entrepreneurs- successful ex-pats- successful investors, sponsored by HTJ.tax

DERREN JOSEPH:

Okay, so good evening or good morning, depending on where you are. Welcome to the latest live stream way to do our tax. We do these tax live streams, these Q and A's every week, and some weeks we do more than one. If you have a look at HTJ tax, you'll see, what's coming up. And if you want to have a look at upcoming events. So as always, we're going to have, we're going to talk about all things, cats, but this is just a general discussion. So don't expect that at the end of this, you'll get actionable advice. You're going to take notes and you're going to do stuff on your own, right? What we're doing is identifying general principles and general ideas that you need to take up with your chosen tax professional. So the important thing is that you need advice, right? So this is not advice. This is educational. We hope that it is educational. Otherwise, you can take it as entertainment, but this is not advice, right? There's no way we can know your situation inside out. Based on this exchange, you need to engage a professional who would know your situation inside out, and whom you have personally engaged. So for those that are asking, yes, this is being recorded. As for those that are joining us on zoom, you'd see that you're prompted to accept the fact that it is recorded and will be available on several platforms. Afterward. Basically, you're going to put it on over 20 platforms. So wherever you get your favorite podcasts, you will be able to access this. If you are on zoom and you do not want your image to be captured on the video recording, all you need to do is keep your cameras switched off. Otherwise, your handsome face would be shown in another recording, and that should be okay. All right. So without further ado, I will turn you over to l Ariel. The floor is yours. Ariel.

ARIEL KATZ:

Oh, sorry. Once again. Thank you so much for this invitation. And thank you for joining us today. I will show my presentation and they will have time in the end for questions that I died in the checks and get to the, can you see my presentation now? Yeah. All right. So my name is Ariel Katz I am an accountant. And also a lawyer I work as an accountant we have offices in Jerusalem. Our office was established in 1997. We rent among 40 the largest come in Israel, which means that we're not small, eh, meaning that we are a one-stop-shop for everything. You need to use that for accounting taxation, but we're not too big. Meaning that the lines are not there. And so I said, I'm a competent lawyer and teaching for over 10 years in the university and also in the state, I have a gold medal from CPS. So I'll feel great. I want to speak of some interesting information regarding US taxation with the US in Israel, combining the US and Israeli tax systems. So the first thing I want to discuss is to assume that many of you are already aware of these bethe benefits for first-time Israeli tax residents, then return with a first-time Israeli example, then you don't fix. And the reporting on the loan is really and also, eh, a veteran returning resident when he's outside of Israel for at least 10 years, also example 10 years. If you're outside of he's lived for 60 years, 10 years, you will be exempt for five years. Please keep in mind that you are only exempt from the non-Israeli source. I have many clients that thought at the beginning that if they receive a salary home, us helping, for example, eh, these exempt, because it's okay, a US company is paying me. So this is not easy, which is not correct and it doesn't matter if the employer is illegal info, another place in the world, like the United States. If you're open to Israel pay tax on debt. However, if you're the owner of this company and you will see the dividends from this company, if dividends for us company is regarded as a US  income, they need it. You will not pay the tax on debt. If you are at the 10 years center, please also be aware that if you're going to Israel, you are allowed to have. And if general condition year in that, you can have a one the first year without deciding whether you can make it. And this is good for people that came to Israel Israel, but I'm not sure if they're going to live or the last year or come back after a few months. One of the most important that's planning for these kinds of people is the end of tax planning person. That for example, in Israel for 7, 8, 9 years, and his religion is 10 years in Islam, very, very important to do at the end of your bill, explaining, eh, to check whether he needs to move assets from one to another to distribute dividends, to change something that is already small too, to when solid, eh, before the end of 10 years and at least one year before that. So this was the first point to a few other points regarding US and Israeli succession. The first one is the fixed credit. As you assume already aware if you have an income from the US and the US the text is not double tech still. However, if the Israeli tax rate is higher than the US right, you would pay only the difference. This is what with the split to input tax. However, we would expect to be talking to me, and there's no security. There is now I mean that with respect to meet, you will pay double. You will pay domicile in the US and for example, if you are self-employed in Eastland and you are US taxes will pay both roomy and national security. And there are some ways to deal with that. The first way to do that is to have your operation and your business. Yeah. The company, because companies are not paying. We go through me and companies are not paying national security is companies are not paying. This one has to do with it. Then you can take a salad from your own company without being national security in the US. This is one solution, the audits, but please be aware that if you are central for the newsletter and you use it, this is something that you have to take care of. Another issue is employee options, many employees in the high-tech industry. We see this in their companies easily in US taxation with respect to options for employees is that Israel wants to text you on the day you received the money. And in the US, you say what to text you for the period in which you received the options, meaning less than an example. The second example is that you walked in the US for four years and see if it's an employee, and then you move to Israel. And one day after you went to Israel, you, you exercise also options, self this, all of the shells and had any income for us. It's the point of view, eh, you have to pay tax because all of these, for years, you walk from the US and eh, your options got vested. However, if you had your gain, is that even if you can do this one in four, that you have to pound that in Israel, this is quite a problem. And it's related to many Israelis that are going for relocation periods in the US. And also here, the things to do with respect to that, but you probably need specific transportation. And now the issue is who is considered a resident? I mean, we are tricking the center of life. If your sense of life is in Israel, you're regarded as an Israeli. You feel set off life is outside of  Israel and he's like a resident in it. You should know that. Eh, one of the goals of the management ITA is one of the inner goals in the last two years is to make it more people to do regardless. And it's like extra residents being that if you will being is more than 90 days a year, not 183 days like that, you make, even if you stay one part of the year, you may be regarded as an Israeli resident. But just to be clear, this is something that management wants to do. But instead of anatomy, with respect to changing with something they want to do. I'm also moving forward with a few. Another issue is succession is your succession issues. The festival is invested by foreign companies on both sides. Most of these that are investing in us companies are doing that via the US, which is usually in a spinner entity. The fact that the entity, that in the US, you will see the K one and you will pay the text in your person in Israel. Basically, this company is not a guarded company. However, the idea, obviously, superhero telling that does can elect this us LLC would be the guy that quite the same, a and D in Israel, however, it's not foreign to us entity, meaning that ITA position, you cannot offset the income and the loss of two separate LLCs. I mean, if you are a profit and loss in another city in the US you could have set them, but it is appointed to the ITA. Eh, you are not entitled to set down. So if you own more than Weiland C, it would be smart to consult over this points, because otherwise, you may have paid doubt and not any issue is the IRS inheritance tax means if a person dies, it is even not the assets. Eh, you may need to pay a no team, but the state will have to pay, you know, since that's so people that our own people, that the, their health is not so good, or even everyone thinking about how to minimize the exposure to us inhabitants. And the way to do it is to invest in the US it is not a company. So use the thoughts to buy life insurance cover sessions. And there is a threshold then, then work with someone which is 60 or $70,000. It's the threshold. And then you have major investments in the US.  The next point I want to discuss is how companies are guarded. It's the newsletter company or not easily company. I have many clients who discussed with me about opening a US company, for example, opening a company, using stipes, open them, the company it's very cheap to do. So you pay, you had the door company in Delaware, you have a mechanism to get funds into it or any other software. And I was told that they must aware if the management company is from Israel. These are the kits we look at. This company is an Israeli resident company. We named it. This company is you have to pay tax in a force, eh, the, the US authorities. We want to stop any to pay taxes in the US as well. And then it was the problem between the IRS. And so usually Israeli tax residents, have to be aware that if they open a company in Israel, it would be better to put them somewhere to be a manager or to minimize this exposure, or to have at least some kind of mechanism of having a one is a company. And one Israeli company the other one US company, according answered by seeing a method in order to make sure they don't have a big tax exposure or not in the US and not Israel. So basically discuss the problem of the LLC. Is that you have an income wirelessly you have in another city with them to one for another. There is in Europe over the last, let's say six months the idea that the top is so kind of new circular for comments, and they may change all the votes that you could have not seen but since it's been something, it, why can't they graze on? We don't have a, wouldn't find that Ansel because even that day or not true, what it would be a finance issue, the next then popularly. The last thing I want to discuss is a US  tax person, having Israeli accepting. For example, if you are a used person and you sell in your only apartment in Israel, you will probably be exempt in Israel. However, you make up to pay taxes in us. And another example, if you have a quite minor income for the renting rental income below 5,000 checkers, it will use a little bit something as well. But again, you have to report and pay the US. And you don't want to tell you, everyone, that if you use this person, you all those have to consult with two people and maybe have them both speak together, to make sure that nothing is missed out and they feel that's planning is mistaken into your account in your both Israel and US income. So thank you, everyone. It was a pleasure. And thank you once again.

DERREN JOSEPH:

Okay. At that. That's what I comprehensive overview. Now. I don't know if you're aware, but when you were talking, about the slide show that you put up, it wasn't moving settle. It stayed on one slide. I don't know whether that was intentional or not, but anyway,

ARIEL KATZ:

Yeah, my computer it's moved, but

DERREN JOSEPH:

It's okay. It's okay. I think you're pretty explicit in covering what, what are key points people need to kind of keep in mind? I've I, for those who want to ask questions, you can type them in the box below and we'll have a look at them and reply we'll apply to them or discuss them in the order in which they received. But I have some questions before we get to that. I cleaned my rights, as the whole staff from questions before everyone else. So this is the idea of someone being based in Israel and forming a company, an LLC, particularly in the US. You, so you did touch on that in a lot of detail. I know there are websites that target people in Israel and in Europe, and they kind of give the impression that, Hey, you form, you stay. When you walk, you form an LLC in Delaware. And whatever that LLC does is going to be free of tax wherever you are. But I think you've made that clear that you need basic economic substance. You need boots on the ground, someone running it for you in the US otherwise it be taxable, but back in Israel. So I, that point was well made. And I think that's important that people hear. So here's my question coming out of that. Does the IPA check for substances? If so, how do they normally make that inquiry?

ARIEL KATZ:

Okay. So usually when you file your Israeli tax return, there are what are called 150 forms, what's on it, and you have to report in response or not    Israeli, it hands companies and a quarter also questioned in this fall, for example, do you have, and going to easily manage how many of them, of the shareholders in the percentage out for Israel, what is the company's doing? What is the taxation rate of that? Is it the people pass it company? Eh, where is the management many, many questions? And this person has me decide whether this is a management company from his lab or not.

DERREN JOSEPH:

Okay. So that's important. So the actual tax return itself is from the, it, it is quite detailed, so that's where they'll pick it up. Okay. That, that, that's good to know. Now you also went into a lot of detail, I thought, which is really good on options. And of course, especially for, for, for people working in the tech sector, it's of course a quite a popular means of compensating people for taking the risk of whatever. So opt-ins come out, come up a lot for both of us. I'm sure. So just, just to be clear, like, so in the US, there are statutory stock options and non-statutory stock options. Basically, if it is that you getting options as a US taxpayer if you're getting options from a US company, chances are, it may be a statutory tax option. So when you awarded the option, so like when you many times you have to buy the options, right? So if there's a Delta between the price that you pay for it and what the market value is, then, the difference may be compensated to you. And then when it vests, when invests, if it is a stock, if it is statutory, if it is a statutory tax option when it vests to you, you may not be taxed on it, but when you sell it, you pay it, you pay capital gains. Whereas if it's, non-statutory when advise it's income to you, and then you pay capital gains, whenever you sell it on, and the non-statutory options, the ones that come from non-American companies, they RS likes it. When you pay that tax upfront, you determine the value and you paid the tax upfront when you are awarded options. But Israel sounds as if it treats it quite differently. So is there a difference between options that are awarded by an Israeli company versus options that are wooded from a non-Israeli company? And, and what could you just go with when exactly the taxable, when you get the option if there's a Delta, or when it vests when you sell all three?

ARIEL KATZ:

Okay. So there's a difference For it if you receive the option in an Israeli or non-Israeli company. So we'll see if it is like a company is usually most of these companies are checking the 102 section meaning that there is a capital gain, and only when you sell the shares. So you can have invested, you can keep it for many, many years, but you pay only when it's steady. And if Israeli a person is receiving a slightly not Israeli company, you still receive shares in pay, let's say, on a monthly basis or on a positive basis. At the time you receive the share, you pay because they'll see the benefit. And if you then sell it, it received the extra amount. If it's still in the US, probably do, will not be covered in the post. The US would have assessed. And, but you were paying these little marginal tax breaks is so many spilling is like them. Let's say you have to find your location, and submit it issued a seal in options. This is the more problematic area because in Israel, eh, should pay the tax only when it's not on the vesting period, but when he exercised the option into, into share, and then if he paid us on the vesting period, and then in Israel, he comes to Israel and Denny, the exercises into shares. Then you can find some problem that us wants to test them. And is that also what's that thing. And then therefore Israel is in the B location. What's a safe option in both Israelis, but also more companies to consult before they come back to Israel in sometimes to mix the exercise if they can, before this going back.

DERREN JOSEPH:

Okay. Thank you. Thank you for that, that, that, cause that is obviously quite a tricky situation. Now I'm going to go to the questions in a few questions were submitted and Gary, I see that you typed a question below, thanks for that. We'll get to that soon. Just quickly. Somebody's asking about president Biden's tax plan and his plan. Yes, he does. It hasn't passed. Right? So right now it's still being debated and discussed in Congress. So obviously it'd be subject to negotiation and the white house, once it'll have to compromise. But at this point in time what the white house is looking for is an increase. They're looking for. They're looking for a lot of stuff, but for people who may be doing business internationally, as the audience here today would be you looking at an increase in personal income taxes. The highest marginal tax rate right now is 87. And they're proposing for that to go up to 39 39 0.6. So, you know, depending on what your situation is, you add escape income tax to it. And you kind of looking at a really high marginal tax rate, potentially if it is you have capital gains and your income is over 1 million, then the part of the proposal is those capital gains would not be given the preferred capital gains. At least long-term capital gains rates, which is half of that. Like it's 20% plus the net investment tax, but roughly 20% of the proposal is for capital gains for higher-income earners to be taxed at ordinary tax rates, which is going to be used because that basically doubles it. That, that's a big one. There's a step up in basis, right? So for example, if someone passes and you like your parents pass and you receive property like a home from them, then there's this sort of basis in that property, you put, when you sell it on, would be the value of the time when the person passed and you received it. Right. But it's proposed that that whole step up in basis be removed. So the value would be which you need to calculate. The capital gains would be when your parents bought it. So the original purchase price, as opposed to when you inherited it. So that will step up in basis that that's, that's a big one. They're also proposing a billionaire tax. So a 20% minimum tax, but they, the trick in that one is it doesn't necessarily apply to billionaires. It applies to anyone if they have assets in excess of a hundred million. So that's not exactly a billionaire, right? So, but, and that may sound like a lot, but if you're working in a tech startup and you know, things are going well, and you know, you know, the valuations are being pushed up before you knew it. You may be sitting on an asset that's where more than a hundred million, and you going to be hit with this minimum task, even though you may not have had a liquidity event. So if it's kind of messy, but it's, what's being discussed anyway, they're looking to repeal the carried interest. And then that's the last one I'll touch on. And of course, for those who invest in a fund structure that allows you to enjoy the returns from a fund structure at a long-term capital gains rate, as opposed to ordinary income rates. So that again is being proposed, but everything is subject to negotiation. So this is just in the proposal phase. This is what's being looked at right now. So I hope that answers your question. And then Gary, Gary's asking you Ariela question about, so I'll read it for the, for the benefit of those who are not in zoom IRL, you mentioned a one-year deferral. Can you repeat what the one year provide it? Wasn't clear. Can you please repeat that?

ARIEL KATZ:

Yes. The one year is a condition for some companies for the first time or residents that are attending resident. You can select this. The first deal would be in the condition you for what this is important. Now people tend to be reserved and not choose to with a comment when we walk out and they are afraid that did come to this lab. And after a few months, they come back to the last and then an hour in the wall. And then the 10 years of the exemption clock will stop taking while they are not in Israel. And they're not using these benefits. I mean, one continues that, but maybe they'll move back and forth and come back after a few years and then it can elect the IPA. Well, I want to use the seals that foundation year, being that if there is like before the end of this year, this year a, there will not be regardless. And it's like, excellent. Then this year, it's all. And this will not. It triggers 10 years of benefits. It's many important to people that are coming to this, and I'm not sure, but they know that somewhere, sometime in the future, they will not want to come to this level. For example, if you come to Israel, you know that in five years you will live in Israel for growth, for sure, but maybe you're coming now, or maybe you will come in five years and you want to make sure that you will not lose five years of tax benefits. So you choose this conditioning period.

DERREN JOSEPH:

Okay, wonderful. I think Gary's happy with that explanation, so, okay, fantastic. Do you have any more questions, Gary, feel free to just type them in the box below. I have a question hand crypto. So in the US, right, when you sell crypto and you receive Fiat or regular currency in exchange, so that, that triggers a taxable event, right? That's a capital gain or loss now unless you're a trader, which is treated separately. So in Israel, it's the same, correct. When you sell crypto for Fiat, that'll trigger a capital gain or loss. So the question is, what about when you sell crypto for crypto? So if you, if you give up one crypto and you exchange it for another, is that an attackable event.

ARIEL KATZ:

Yes. Every transaction with, I mean, if you buy Bitcoin change changes back to Bitcoin, send you back to use every transaction is a tax Trent in Israel. And also most of these Israeli would pay capital gains tax. I mean, 25%. Same as the shares. If you're not reading would go ahead and do business, but for every transaction, if you're moving from one frequency to another, you'll have tax.

DERREN JOSEPH:

Okay. Gotcha. Now, in terms of the so taxable event, is the difference between the purchase price and the selling price. So on the up question from that, so the, in the US, you have the purchase price, but you also allow to increase that basis in the, in the coin or the NFT, whatever it may be with it if you had to pay any fees or any sort of commissions or royalties, is, are you allowed to increase basis with other cost items with the Israel Taxes?

ARIEL KATZ:

Yeah. Basically, all your cost-related expenses are getting into your cost basis. I mean, of course, they must be paid for it but also if you have fees or anything that you've had very related to this would be.

DERREN JOSEPH:

Okay. That's helpful to know another question for someone who's self-employed someone is self-employed and receives crypto as compensation for whatever service they have rendered. Now, when they're, if they were paid in red Lafayette, you mentioned that obviously self-employment taxes would apply. I think you mentioned that you need presentation would the same apply if they were paid in crypto, that it would trigger the normal social charges. And that would, that would apply if you were being paid in Fiat.

ARIEL KATZ:

If you are self-employed and receive your income in crypto, first of all, it's like receiving any other income. You have to pay tax on that, and when you sell it in any other currency you would have a capital gain. I mean, the first check, the value, and this is the regular income you pay income tax and pay also social security on that. The next section would be capital gain.

DERREN JOSEPH:

Gotcha. Perfect. Understood. So basically the same as in the US we have a question from Avery down below, I'll read it for Ben for the benefit again, of those who are not on zoom, any type of capital gains are not taxable in Israel during the first 10 years. So as we seek he or she is seeking confirmation, that capital gains are not taxable in Israel during the first 10 years. Question mark, is that true?

ARIEL KATZ:

It's not any time. I mean, if you're, again, if you are entitled you to want to tell it to 10 years of exemption for capital gains which means that if you're setting in inside the company share, for example, you will have to pay tax on that. If you're selling to a non-Israeli company would be, you be exempt. Eh, but if it's an asset in Israel that you're buying, selling an S or a company share is not something that you would have to pay.

DERREN JOSEPH:

Okay. Okay. Avery is happy with that reply. Fantastic. That's what I'm not seeing, I'm going to have a quick check on Facebook and see what's happening over there. See that? Any more questions from that side? No, there are not. So guys, any more questions? All right. So short and sweet. We're glad that we were able to answer all your questions here today will not answer, answer, but we have hopefully given you the key concepts that you need to take away and discuss with whoever you prefer to advise would be Ariel. Thank you for your time. Once again, deeply appreciate it. And just, just, you know, to drive that message home. How can people reach you if they want to reach your members? Some people cannot see the screen and the slides that you had. So do you want to give a shout-out to your email, your website, or your phone number?

ARIEL KATZ:

You put my words in the chats

DERREN JOSEPH:

Okay. So Ariel Katz. That's the guy that you want to talk to with any Israeli tax issues. And that's www.amoskatz.co.ariel I really appreciate it. See you next time.

OUTRO:

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