Taxation in the USA for Israeli Investors

The USA is one of the largest and most powerful countries in the world, especially in the financial field, and thus it attracts many investors from Israel and the rest of the world. It is possible to find various worthwhile profitable financial opportunities. Yet to examine whether it is indeed a profitable deal, several aspects must be examined. One of the main ones is the issue of taxation. Here is a complete guide for taxation issues in the USA for Israeli investors.

Why Should We Actually Invest in the USA?

We all look for profitable and most yielding investments and whether we exhausted the existing investment possibilities in Israel or feel like “think big”, the USA constitutes one of most preferred investment destinations for Israeli investors.

Apart from being one of the largest financial powers in the world, the USA offers investors a convenient and safe infrastructure for investments. First, the international language which is easy and convenient to understand. Second, it is expressed by additional means such as full transparency and an organized regulation which enable the investors to operate their actions clearly, conveniently and in an orderly manner, including the whole issue of taxation in the USA, for which it is possible to consult with MasAmerica’s professional team.

Real Estate Investments in the USA

One of the most common and preferred investments for Israeli investors in the USA is the field of real estate and especially since the Subprime crisis outbreak throughout 2008, when real estate prices decreased drastically. Beside the convenient prices and the profitable business opportunities, before any real estate deal several significant aspects must be examined, which will help us make sure it is a profitable deal. One of the central aspects is the issue of the USA taxation aspect for Israeli investors.

What is the Importance of the USA Taxation Issue for Investors?

There is no doubt that before any real estate deal, we must prepare ourselves. We must define the deal’s aims and recruit the required equity and examine the property’s state, the area’s socio-economic state, the expected rent etc. Yet, while these aspects are like almost any real estate deal, we will carry out whether in Israel or the USA, the taxation aspect has a significant and determining role in its effect on the profitability of the deal:

The Deal’s Profitability

Taxation rate in the USA for investments in general and for foreign investors specifically, may reach especially significant amounts, which we must consider as a part of the deal involved expenses. We can minimize the tax liability by a professional and experienced accountants office but in any case, we must consider all the possible scenarios to avoid unsuccessful deals and painful loses.

Sanctions and Punishments

According to the USA’s taxation system, the filing requirement is applied on investors and entrepreneurs  (including ones from foreign countries) in each US state, according to which they must report the tax authority about their incomes and profits. If these reports are not submitted at all/ on time and/or inaccurately, the investors expose themselves to various sanctions and punishments, which may range from high fines to criminal procedures and revoking one’s passport.

Taxation in the USA for Investors – Important Points to Notice

Even before entering the issue of taxation in the USA, one should consider and notice a few main and influential points regarding your tax liability as Israeli investors in the USA:

Choosing the Investment’s Structure

The USA taxation method distinguishes between the organisation form and maintenance structure of the investor in a manner that affects the tax burden and according to that, the deal’s profitability. The most common forms of investments are private purchase, a company, a local American company or a foreign company.

Choosing a Taxation Track

In real estate investments in the USA, there is a distinguishment between profits received from rent intakes and profits created by selling the properties (capital gain). Regarding the first option, the investor should choose the most suitable taxation track for him/her – a unified tax rate or taxation of the rent intake as business income.

Type of Taxes

Taxation in the USA for Israeli investors is divided into several main types of taxes which are important to get acquainted with – federal tax, state tax, city tax, capital gains tax and inheritance tax.

Taxation in the USA – Forms to Get Acquianted With

The filing requirements to that American tax authority is also applied on Israeli investors and is involved in submitting several forms:

Reporting Form FATCA

In reporting form FATCA one must report financial accounts that exist outside the USA (if the accumulated amount in them rises above $10,000), such as current accounts, provident funds, pension funds, life insurances which include a savings component etc.

NR1040

In this form you must report all the incomes you had in the current tax year. Both active and passive incomes, and you need to fill your personal details as well as relation to possible deductions which could credit you in tax refund.

Form 8938

This form related to the filing requirement of financial properties located outside the USA. The filing requirement is relevant for Israeli investors who do not live in the USA.

Taxation in the USA for Investors as Opposed to Taxation in Israel

The USA taxation method is unique and different from other known taxation methods, including the Israeli taxation method. Some main differences are:

It is important to know that between there is a tax treaty between Israel and the USA through which it is possible to avoid situations in which Israel investors will pay taxes in both countries for the same income. In the case of real estate investments in the USA the tax treaty rules that the preliminary taxation right belongs to the country where the investment takes place.

An American Licensed Law and Accountant Office – The Safest Way for a Successful Deal

We can see that the USA taxation issue constitutes one of the main considerations in which we must consider when we come to examine the profitability of the investment in the USA in general and in real estate specifically. To accurately reliably examine the issue of taxation and check the best possibilities for you to reduce the tax liability, it is recommended to turn to the service of a professional and experienced accountant office – MasAmerica – contact.

Frequently Asked Questions Regarding Taxation in the USA for Israeli Investors