In the interests of helping US expats living in Israel be better aware of their potential tax responsiblities, we are proud to present some much needed basic tax assistance regarding common issues and misconceptions courtesy of CPA, Ron Zalben.
Ron, thank you for giving us your time. Please tell us a little about yourself.
I grew up in Wisconsin, got my BS from Bradley University in Illinois, and my MS from the University of Wisconsin Milwaukee. I live in Israel with my wife and 4 children. I am a qualified CPA in both Wisconsin and Israel. I have 20 years of experience in tax planning and compliance and am a partner at Don Shrensky & Co. here in Israel.
What is the most common question you get from clients about US taxes for expatriates living in Israel and what is the answer?
I often get asked by clients if they have to continue to file US tax returns. Generally, the answer is yes, you must continue filing federal returns. However, you usually can stop filing state returns with exceptions.
What are some common misconceptions American expats have about US tax preparation and filing?
Often clients feel that only their US income should be reported on their US tax return and if they have no US source income they do not have to file a return. US citizens are in fact liable to US taxation on their worldwide income. Another misconception is that US citizens will be double taxed on their income. Taxpayers will not be double taxed. If you paid income tax to another country, such as Israel, you will receive a credit on your US return for foreign taxes paid. A third misconception is that taxpayers believe they can use the foreign earned income exclusion to exclude all foreign source income. In general, the foreign earned income exclusion only applies to wages and self-employment income, not to passive income nor pensions. It is always best to contact a tax professional to evaluate your individual situation.
If a US expat earns wages in Israel, but only earns passive income from investments in the US, what tax documentation is he required to file?
He will need to provide to his tax preparer a copy of his Israeli form 106 for his wages and his 1099s from the US. If audited he will need to provide to the Internal Revenue Service a certified translation of his form 106.
If someone is married according to the State of Israel, but not civilly married in the US, are taxes filed jointly or individually?
If you are married in Israel you are considered married for US tax purposes. If your spouse is a non-American you will either file married filing separately or head of household depending on your situation.
If you sell your house in the US, but live in Israel, are you required to pay taxes on the sale? Is there a way around that tax?
The general rule is if you lived in the house as your primary residence 2 of the last 5 years prior to the sale then $250,000 of the gain can be excluded if you file single, head of household, or married filing separately and $500,000 can be excluded if you file married filing jointly. If you rented out the house during some of the time that you owned it you will have to pay tax on some of the gain.
If you sell a house that does not meet this criteria, for example a rental property, you will owe tax on 100% of the gain. There is a way to avoid capital gains tax in the US by using a section 1031 exchange. Ask your accountant if this is right for you.
If a US expat earns wages in Israel, but only earns passive income from investments in the US, what tax documentation is he required to file?
He will need to provide to his tax preparer a copy of his Israeli form 106 for his wages and his 1099s from the US. If audited he will need to provide to the Internal Revenue Service a certified translation of his form 106.
If someone is married according to the State of Israel, but not civilly married in the US, are taxes filed jointly or individually?
If you are married in Israel you are considered married for US tax purposes. If your spouse is a non-American you will either file married filing separately or head of household depending on your situation.
If you sell your house in the US, but live in Israel, are you required to pay taxes on the sale? Is there a way around that tax?
The general rule is if you lived in the house as your primary residence 2 of the last 5 years prior to the sale then $250,000 of the gain can be excluded if you file single, head of household, or married filing separately and $500,000 can be excluded if you file married filing jointly. If you rented out the house during some of the time that you owned it you will have to pay tax on some of the gain.
If you sell a house that does not meet this criteria, for example a rental property, you will owe tax on 100% of the gain. There is a way to avoid capital gains tax in the US by using a section 1031 exchange. Ask your accountant if this is right for you.
If a US expat earns wages in Israel, but only earns passive income from investments in the US, what tax documentation is he required to file?
He will need to provide to his tax preparer a copy of his Israeli form 106 for his wages and his 1099s from the US. If audited he will need to provide to the Internal Revenue Service a certified translation of his form 106.
If someone is married according to the State of Israel, but not civilly married in the US, are taxes filed jointly or individually?
If you are married in Israel you are considered married for US tax purposes. If your spouse is a non-American you will either file married filing separately or head of household depending on your situation.
If you sell your house in the US, but live in Israel, are you required to pay taxes on the sale? Is there a way around that tax?
The general rule is if you lived in the house as your primary residence 2 of the last 5 years prior to the sale then $250,000 of the gain can be excluded if you file single, head of household, or married filing separately and $500,000 can be excluded if you file married filing jointly. If you rented out the house during some of the time that you owned it you will have to pay tax on some of the gain.
If you sell a house that does not meet this criteria, for example a rental property, you will owe tax on 100% of the gain. There is a way to avoid capital gains tax in the US by using a section 1031 exchange. Ask your accountant if this is right for you.
If you want to speak with Ron about his services, feel free to contact him by email ron@dscpa-israel.com or by phone 02-6294272 EXT. 278. You can also hear him talk about taxes in his weekly segment on the Goldstein on Gelt radio show.
If you want to speak with Ron about his services, feel free to contact him by email ron@dscpa-israel.com or by phone 02-6294272 EXT. 278. You can also hear him talk about taxes in his weekly segment on the Goldstein on Gelt radio show.
If you want to speak with Ron about his services, feel free to contact him by email ron@dscpa-israel.com or by phone 02-6294272 EXT. 278. You can also hear him talk about taxes in his weekly segment on the Goldstein on Gelt radio show.
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