U.S.-Israeli Estate Tax Planning for Dual Citizens Reconciling U.S. - - PowerPoint PPT Presentation

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U.S.-Israeli Estate Tax Planning for Dual Citizens Reconciling U.S. - - PowerPoint PPT Presentation

Mar 13, 2024 307 likes •1.02k views

Presenting a live 90-minute webinar with interactive Q&A U.S.-Israeli Estate Tax Planning for Dual Citizens Reconciling U.S. and Israeli Law on Trust Taxation, Inheritance Laws, Situs Wills, and Wealth Transfers TUESDAY, SEPTEMBER 12, 2017

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The audio portion of the conference may be accessed via the telephone or by using your computer's

  • speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.

U.S.-Israeli Estate Tax Planning for Dual Citizens

Reconciling U.S. and Israeli Law on Trust Taxation, Inheritance Laws, Situs Wills, and Wealth Transfers

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, SEPTEMBER 12, 2017

Presenting a live 90-minute webinar with interactive Q&A Gidon Broide, CPA, Managing Partner, Broide and Co., Jerusalem, Israel Debra T . Hirsch, Partner, Fox Rothschild, Morristown, N.J. and New York

  • K. Eli Akhavan, Managing Partner, Akhavan Law Group, New York

Felicia M. Seaton, Esq., Felicia Seaton Law, Jerusalem, Israel

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send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

FOR LIVE EVENT ONLY

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Continuing Education Credits

In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For CPE credits, attendees must participate until the end of the Q&A session and respond to five prompts during the program plus a single verification code. In addition, you must confirm your participation by completing and submitting an Attendance Affirmation/Evaluation after the webinar and include the final verification code on the Affirmation of Attendance portion of the form. For additional information about continuing education, call us at 1-800-926-7926 ext. 35.

FOR LIVE EVENT ONLY

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Program Materials

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FOR LIVE EVENT ONLY

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U.S. Estate Tax Regime

  • vs. Israeli Law of

Inheritance

Osher Felicia International Law Office www.feliciaseaton.com

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US Israel Probate issues vs. tax issues Probate required Very little Survivorship US trust owning Israeli property Israel taxes residents & property owners only No Israeli Inheritance/Estate tax

Osher Felicia International Law Office www.feliciaseaton.com

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Education Required

US citizens residing in Israel unaware US

tax applies.

Educate regarding US Federal estate & gift

taxation & “mixed marriages”

IRS Minimum Required Distributions at

age 70.5

Osher Felicia International Law Office www.feliciaseaton.com

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US Estate Tax Solutions

US ILIT is possible for Israeli residents Charitable giving is limited among Israeli

residents

Osher Felicia International Law Office www.feliciaseaton.com

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Minor Children

Minor children treated

differently - US & Israel

Israeli Wills holding estate for US minors US trusts for minor beneficiaries

Osher Felicia International Law Office www.feliciaseaton.com

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Must plan for Israeli assets separately

because must use a Will. Guardianship for minor children

Israeli assets always require Israeli Probate,

even if there was US probate. Income tax compliance – FBAR

Executor/none

Probate

Osher Felicia International Law Office www.feliciaseaton.com

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Team Required

  • US CPA
  • Israeli CPA
  • US Estate Planning Attorney
  • Israeli Attorney

Tax Issues

Step up in basis US vs. Israel

Osher Felicia International Law Office www.feliciaseaton.com

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Current Tax Issues

Possible US tax reform including repeal of

US Federal estate tax.

IRS & State Department cooperation since

  • Jan. 1, 2017.

Osher Felicia International Law Office www.feliciaseaton.com

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Gift Tax Issues

Buying child a home Child residing rent-free Unaware of gift tax and annual exclusion

Osher Felicia International Law Office www.feliciaseaton.com

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Miscellaneous Issues Arising

  • Interesting whether foreign estates are

subject to US Federal income taxation.

  • Should US citizens apply for citizenship for

their children

Osher Felicia International Law Office www.feliciaseaton.com

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Gidon Broide, CPA

gidon@broide.com

Mechanism and Implementation in Israel

U.S.-Israel Tax Treaty

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Basic Treaty Mechanism

  • US Citizens (and some Green Card holders) living in Israel are

generally obligated to file both Israeli and US tax returns.

  • They are subject to taxes on their world wide income.
  • Israeli residents may claim a foreign tax credit on their US

return for taxes paid in Israel (certain limitations apply).

  • Israeli residents may claim a foreign tax credit in Israel for

taxes paid in the US (certain limitations apply).

  • The end result should be a tax liability equal to the highest

tax rate (Israel/US) for each type of income, and generally no double taxation of income.

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Basic Treaty Mechanism

  • Tax rates applicable for each Country.
  • Who (Israel/US) taxes the income first –

right to “first bite”.

  • Utilizing deductions.
  • Utilizing foreign tax credit.
  • Planning

to avoid partial double taxation.

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The Numbers – Comparing Tax Rates (2017)

Income United States

(excludes Medicare tax)

Israel Israel + Wealth Tax**** Ordinary Income 39.6%** 47%** 50%** Dividends Regular 39.6%** Qualified 20% 25% [30%*] 28% [33%*] Interest 39.6%** 0% Municipal

Bonds***

25% [30%*] 15% [unlinked

instruments]

28% [33%*] 18% [unlinked

instruments]

Capital Gains Short Term 39.6%** Long Term 20% 25% [30%*] 28% [33%*]

** Top marginal tax rate ***Usually exempt * Controlling Shareholder **** 3% On annual taxable income above NIS640,000 51

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Israeli Taxes on US Income

Income Type Israeli Taxes Comments US Pension Reduced rate per Sec. 9(c) Taxed at the same rate it would have been taxed in the US had it been the taxpayers only source

  • f income

Social Security Benefits Exempt US Rental income 30% - 47% 0% - 47% for taxpayers aged 60

  • r older

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The Right to First Bite (Article 26(2) of

Treaty)

  • Real Estate Rental Income – Location of the property
  • Dividends, Interest, Royalties – Where earned
  • Capital Gains – Country of residence
  • Capital Gains from sale of real estate – Location of the

property

  • Business Income – Country of residence unless work

performed in the other country in which the taxpayer has a permanent establishment or even where no permanent establishment.

  • Salary/Employment income – Where earned, unless

the taxpayer spends 183 days or more in the other country during the tax year (Section 16)

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Deductions

  • Israel will generally allow actual expenses and will not

cap them.

  • The US standard deduction can’t be used as a

deduction for Israeli tax purposes.

  • When using the standard deduction in the US, ask

your professional to provide a Schedule A of itemized deductions (may be used on your Israeli return).

  • Charitable contributions are used as tax credit (35%)

and not as deductions.

  • Some US deductions are not allowed – e.g. medical,

home mortgage interest.

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Foreign Tax Credits

  • Israel will allow - in most cases - a $ to $ tax credit for

US taxes paid on income taxed by the US in accordance with the Treaty. Tax credit will be limited to the tax rate applicable in Israel.

  • Foreign tax credits, not utilized during the current

year can be carried forward for five years.

  • For foreign tax credit purposes, US taxes should be

allocated to the various types of income – specific allocation or average are generally accepted.

  • US State taxes may be used as a foreign tax credit.
  • The ITA will not permit a tax credit for Medicare tax.

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There is NO Social Security Treaty

  • Israel has no Social Security treaty with the U.S.
  • Tax Treaty exempts U.S. Social Security benefits.
  • Payments to Social Security are usually not

deductible.

  • Other U.S. income such as real-estate income may be

subject to both Social security and Israeli National Insurance (unless taxed at 15% route).

  • Self Employment Tax (15%) is not deductible and

may not be applied as a foreign tax credit – This requires tax planning to avoid double taxation

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Israeli Tax Filing - Other Considerations

  • U.S. Charitable Contributions – subject to certain

limitations, can be reported – will generate a 35% tax

  • credit. Does not apply to Trusts and Foundations.
  • State taxes can be used as a foreign tax credit.
  • Don’t forget to consider social security/national

insurance.

  • Make sure your Israeli CPA/tax advisor as well as

your US tax professional are aware of the specific issues related to Israel-US taxes.

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Costly mistakes

  • Not applying the first bite rules properly:
  • Example:
  • Capital gains from sale of shares by an Israeli

resident, were reported for many years on her US 1040 and significant taxes were paid in the US.

  • The ITA audited her Israeli tax return and

demanded that the US capital gains be taxed in Israel at 25%.

  • The IRS refused to amend some of the years,

resulting effectively in double taxation.

  • Ignoring the 10-year “tax holiday”
  • Forgetting when the 10-year “tax holiday” is about to

end

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Gidon Broide, CPA (Israel, U.S.), TEP Tel: +972-25611323

gidon@broide.com

This presentation provides general guidelines and does not provide tax advice. Before making decisions consult with a tax professional for specific tax advice.

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