3. U.S. Income taxes
Requirement to file tax return – 2011
Single: <65 ……gross income = $9,500
Single: 65+……. =$10,950
MFJ: <65 (both spouses) =$19,000
MFJ: 65+ (one spouse) =$20,150
MFJ: 65+ (both spouses) =$21,300
MFS: any age …………. =$3,700
HH: <65 ……………. =$12,200
HH: 65+……………. =$13,650
Self-employment income… >$400
4. U.S. Income taxes
Standard Deduction:
Married Filing Joint = $11,600
Head of Household = $8,500
Single and Married Filing separate = $5,800
Personal exemption:
$3,700 per exemption / dependent
5. U.S. Income taxes
Special rules for U.S. Citizens living in Israel:
• Foreign Earned Income Exclusion:
Exclude up to $92,900 foreign earned income
Each spouse has separate exclusion
• Tax treaty benefits:
US Social Security benefits exempt from both US and
Israeli tax
U.S. pensions taxed in Israel first; claim foreign tax
credit on U.S. income tax return
U.S. capital gains taxed in Israel first; claim foreign tax
credit on U.S. income tax return
6. U.S. Income taxes
Self-employed individuals
Can deduct 100% health insurance costs (AGI)
For 2011, SECA reduced from 14.1% to 12.28%
up to $106,800 net SE income.
2.9% medicare tax on SE income > $106,800
From 2013: +0.9% hospital insurance (HI) on wages
and SE net income >
$250,000 – MFJ
$125,000 – MFS
$200,000 – everyone else.
Consider incorporating to save SECA
7. U.S. Income taxes
Income tax rates:
Lower rates 2011-2012
For 2011-2012: 10%, 15%, 25%, 28%, 33%, and 35%
For net L-T capital gains and qualified dividends: 15%
Non-corporate taxpayer: 0% tax (if subject to 15% tax)
to the extent would be taxed at 10% or 15%.
Example: MFJ, both spouses <65 up to $88,000
MFJ, both spouses > 65 up to $90,300
From 2013
Assume rates will increase
Pre-Bush rates: 15%, 28%, 31%, 36% and 39.6%
8. U.S. Income taxes
Sales of Securities
New Reporting Requirements:
Cost Basis Reporting by Broker to the IRS
•For stock bought after Jan 1, 2011
•For mutual funds bought after Jan 1, 2012
•For options and other securities bought after Jan 1, 2013
Previously only reported Proceeds of sales.
9. U.S. Income taxes
Sales of Securities
New Reporting Requirements 2011 tax return:
Capital Gain Reporting by tax payer – New form 8949
• A – Both proceeds and cost basis reported to IRS
• B – Proceeds reported to IRS; cost basis not reported
• C – Neither proceeds nor cost basis reported to IRS
Short-term and long-term reported separately for each category
10. U.S. Income taxes
AMT (Alternative Minimum Tax) for 2011
The AMT exemption levels for 2011 are as follows:
Married Filing Joint = $74,450, [25% phaseout for AGI
exceeding $150,000]
Single = $48,450, [25% phaseout for AGI exceeding
$112,500]
Head of Household = $48,450, [25% phaseout for AGI
exceeding $112,500]
Married Filing Separate = $37,225, [25% phaseout for AGI
exceeding $75,000]
11. U.S. Income taxes
AMT calculation for 2011
•26% flat rate on first $175,000 AMT income ($87,500-MFS)
•28% flat rate on excess AMT income
•15% long-term capital gains rate applies to AMT capital gains
•Foreign tax credit allowed
•AMT only applies if exceeds regular income tax:
Income tax on line 44
Less: foreign tax credit (no other credits)
12. U.S. Income taxes
Donated IRAs – in 2011
•Individuals = 70.5 +
•Up to $100,000
•Qualified public charity
•Direct transfer from IRA to charity
•Qualifies as RMD (if RMD < $100,000)
•Only standard IRAs and Roth IRAs(?) qualify
•No charitable deduction
•IRA distribution not included in taxable income
Possibly extension for 2012…stay tuned.
13. U.S. Income taxes
Surtax on unearned income
Beginning 2013
Imposed on individuals, estates and trusts
Medicare contribution tax = 3.8%
For individual: computed on the lesser of:
(1) net investment income or
(2) excess of MAGI over threshold:
$250,000 – MFJ or surviving spouse
$125,000 – MJS
$200,000 – everyone else.
Sale of real estate – possibly affected
14. U.S Income taxes
Keren Hishtalmut
Taxable when eligible to withdraw from
fund, after six years under constructive
receipt
Employee contributions (25%) not taxable
15. U.S. Income taxes
PFICS
Holders of foreign mutual funds ((קרן נאמנות
Certain corporate shareholders required
Must file annual report with IRS (previously
required 8621)
50% of Assets = Passive
75% of Gross Income = Passive
Taxed at highest tax rate: today = 36%
16. U.S. Income taxes
Child’s tax credit
Reduces tax liability
Maximum $1,000 per qualifying child
Reduced $50 for each $1,000 of MAGI over:
$110,000- Married Filing Jointly
$75,000- Single
$75,000 – Head of household
$55,000- Married Filing Separate
Credit cannot exceed:
Regular tax + AMT
Less certain credits
17. U.S. Income taxes
Additional child’s tax credit
Refundable credit
Greater of:
(1) 15% of taxable income >$3,000, or
(2) excess of SECA > earned income credit, if
have 3 or more qualifying children.
Less: the child’s tax credit used to reduce tax.
18. U.S. Income taxes
Qualifying child
Qualifies as a dependent
Under the age of 17 years old at years end
U.S. citizen or resident alien
Must include on tax return the child’s name and SS#
Qualifying relative
Specified relative (e.g., grandchild)
Gross income < exemption amount ($3,650-2010)
Taxpayer provides > 50% support
Is not qualifying child of another
Exception: Parents are not required to file a return and
does not file a return; or files on to claim tax refund.
19. U.S. Income taxes
Phase outs and limitations postponed until 2013
• Itemized deduction limitation
• Personal exemption phase out
• Standard deduction marriage penalty
20. U.S. ESTATE /GIFT TAXES– 2011 & 2012
Exemption
$5 million per person ($5,120,000 in 2012)
Lifetime aggregate – gift and estate tax
GST is the same
Portable to surviving spouse:
unused portion of last deceased spouse
(multiple marriages)
Irrevocable election on estate tax return
Not GST exemption
21. U.S. ESTATE/GIFT TAXES– 2011 & 2012
Federal estate & gift tax rate: 35%
Stepped-up basis: beneficiaries receive
property with stepped-up basis to
date of death values.
22. U.S. Gift Taxes
Annual gift tax exclusion - 2011:
$13,000 per donee
$136,000 to NRA spouse
Annual gift tax exclusion – 2012:
$13,000 per donee
$139,000 to NRA spouse
Additional gift tax exemptions:
Direct tuition and medical payments
23. U.S. ESTATE / GIFT TAXES –
2013
$1 million estate tax exclusion and
gift tax exemption
55% estate and gift tax rate
24. Information Reports
TD F 90-22.1 Foreign Bank Account Report - FBARs
3520 Annual Return to Report Transactions with Foreign Trusts
and Receipt of Certain Foreign Gifts
3520-A Information Return of Foreign Trust with a US Owner
5471 Information Return of US Persons with Respect to Certain
Foreign Corporations
5472 Information Return of a 25% Foreign-Owned US Corporation
or a Foreign Corporation Engaged in a US Trade or Business
926 Return by a US Transferor of Property to a Foreign
Corporation
8865 Return of US Persons with Respect to Certain Foreign
Partnerships
8938 Statement of Specified Foreign Financial Assets [new 2011]
25. Foreign Financial Assets
Foreign Bank Account Report – FBAR
Accounts > $10,000 on any given day in tax year
Aggregate of accounts = include all accounts
Financial interest
• includes if own foreign company
Signature authority
• volunteer for non-profit organization
• controller for company
Penalty $10,000 for not filing each year
Penalty of $100,000 or 50% of account balance for
each year if willful failure to file
U.S. person must file
26. Foreign Financial Assets
Foreign Bank Account Report – FBAR
bank accounts
brokerage accounts
mutual funds
unit trust
accounts maintained with a financial institution or
other person engaged in the business of a
financial institution
Commingled fund and hold equity interest
Keren Hishtalmut
Kupot Gemel
Bituach Minhalim
27. Foreign Financial Assets
Foreign Bank Account Report – FBAR
U.S. PERSON:
Citizen or resident of U.S.
Domestic partnership
Domestic corporation
Domestic trust or estate
Persons in and doing business in U.S.
28. Foreign Financial Assets
HIRE Act
• For years beginning after 18 Mar 2010
• U.S. individual
• “specified foreign financial assets”
• Aggregate value > specified amount
• Report on tax return
29. Foreign Financial Assets
HIRE Act
Filing threshold Form 8938
If living in the U.S. - >$50,000
If living overseas –
joint return - >$400,000 on 31 Dec
or > $600,000 at any time during the tax year
other than joint - >$200,000 on 31 Dec
or > $400,000 at any time during the tax year
30. Foreign Financial Assets
HIRE Act
“Specified Foreign Financial Assets”:
• Any financial account maintained in a
“foreign financial institution”
• Any stock or security issued by non-U.S. person
• Any interest in foreign entity
• Any financial instrument or contract held for
investment and issued by non-U.S. person
31. Foreign Financial Assets
FATCA
Starting in 2013 foreign banks have to enter into an
agreement with the IRS.
Banks will be required to determine which of their account
holders are U.S. persons - due diligence.
Information on U.S. persons’ bank account activity will be
reported to the IRS starting from tax year 2014.
32. Foreign Financial Assets
FATCA
30% withholding tax at source for account holders who
refuse to divulge if they are U.S. persons
30% withholding tax at source for all account holders at
banks that refuse to comply with FATCA.
Israeli banks have agreed to comply with FATCA.
Withholding applies to U.S. source income
“U.S. account” = any financial account held by
“specified U.S. person” or U.S. owned foreign entity
33. Foreign Financial Assets
FATCA - Proposed Regulations
• In 2014 (for the 2013 calendar year), only the name,
address, TIN, account number and account balance
must be reported.
• Required reporting on income beginning in 2016 (for the
2015 calendar year)
• Required reporting on gross proceeds beginning in 2017
(for the 2016 calendar year).
• Withholding will not be required on foreign pass thru
payments until January 1, 2017;
• Participating FFIs will be required to annually report the
aggregate amount of certain payments to each
nonparticipating FFI.
34. Foreign Financial Assets
FATCA - Proposed Regulations
• Increased reliance on existing customer intake and KYC/
AML procedures, particularly with respect to new
accounts.
• Preexisting individual accounts with a balance or value of
US$50,000 or less (US$250,000 for certain cash value
insurance or annuity contracts) and preexisting entity
accounts with a balance or value of US$250,000 or less
are exempt from review.
• Accounts with a balance or value in excess of these
amounts but less than US$1 million will be subject only
to review of electronically searchable records (i.e.,
information that can be accessed using a database
search).
35. Foreign Financial Assets
FATCA - Proposed Regulations
• Manual review of paper records (limited only to certain categories of
paper records) will only be required where the account balance
exceeds US$1 million – an increase from the previous US$500,000
threshold.
• If “enhanced review” beyond a review of electronically searchable
records is required because the account value exceeds US$1
million, inquiry as to a relationship manager’s actual knowledge of
indicia of US ownership will be required, and FFIs will need to
implement appropriate policies and procedures to ensure
compliance with the requirement.
• Verification of compliance through third-party audits will not be
mandated, and FFIs may generally rely on periodic internal reviews
rather than external audits.
