New US-Israel Tax Interactions for 2017
If you or your children are U.S. citizens, investors in the United States, or otherwise interacting with U.S. business interests, changes are upon us! Here is a brief summary of some important things to note for the upcoming year.
Kids and Taxes
Bituach Leumi Savings Plan
Children who are Israeli citizens will begin to receive money in the amount of 50 NIS from Bituach Leumi (national insurance) on a monthly basis. Parents may choose to match this amount, as well as choose where it should be deposited – a savings account or a mutual fund (kupat gemel). The kupat gemel requires burdensome tax reporting requirements for children who are U.S. citizens, as well as punitive taxation for investing in foreign mutual funds. This complex U.S. law is known as the PFIC tax regime.
To avoid the compliance costs associated with PFICs and the risk of double taxation, we recommend choosing the bank account option.
Child Tax Credit
To claim the child tax credit, the child must have a Social Security number or Individual Tax Identification Number (ITIN) by the due date – including extensions — of the tax return for the taxpayer claiming the credit.
There is no retroactive ability to claim the credit if the child does not have a Social Security number or ITIN.
The IRS is now requiring additional forms from tax preparers to ensure that the child tax credit can be claimed. We are preparing a list of questions that will be a part of our client checklist in order to serve you better.
Education Tax Benefits
General credits and deductions
To claim any education tax credit or deduction for tuition expenses, you must obtain IRS Form 1098-T from the school that you or your dependent child (students up to age 24) attends. It will list the amount of qualified tuition expenses that you paid the institution for 2016 academic semesters. The form must be issued to you by January 31, 2017. Contact the institution as soon as possible. Please note that many of the qualified schools in Israel do not issue this form, therefore negating the possibility of claiming this tax credit.
Tax benefits for tuition expenses may only be claimed for qualified education expenses paid to institutions of higher learning worldwide that are recognized by the U.S. Department of Education. For a full list, click here.
Note: To date, most of these schools do not issue the required Form 1098-T; this will prevent you from claiming a tax benefit.
Claiming the American Opportunity Education Credit
The same Social Security number (or ITIN) requirement and similar exercise of due diligence as claiming the Child Tax credit (see above) now apply to claiming this education credit.
Filing Date Changes
The filing date for the Report of Foreign Bank and Financial Accounts (FBAR) that reports the highest annual balances in foreign financial accounts (bank, investment, pension, keren hishtalmut accounts, etc.) has been automatically extended to October 16, 2017, six months beyond the April deadline for some U.S. tax filings. U.S. citizens abroad will automatically receive this extension to October from June 30, but there are no other extensions available.
Partnership and C-Corporation Tax Returns
Partnership tax returns are due on the 15th day of the third month following the end of the partnership’s tax year. For calendar year partnerships, this year’s due date is March 15, 2017.
C-Corporation tax returns are due on the 15th day of the fourth month following the end of the corporation’s tax year. For calendar year corporations, this year’s due date is April 17, 2017. (April 15, 2017 is a Saturday.)
The IRS announced that foreigners (non-U.S. citizens or green card holders) must, for the first time, renew ITINs; in the past, ITINs did not expire. An ITIN not used on a federal income tax return in the last three years (covering 2013, 2014, or 2015) will no longer be valid to use on a tax return.
Contact us for information about applying for and renewing an ITIN.
The calendar year is just beginning, but the cycles of U.S. tax reporting are constantly in motion! Whatever your needs may be, please be in touch for a consultation.