U.S. and Israel Tax Compliance-General Guidelines

The information below is for educational purposes only and shouldn't be considered legal, accounting or tax advice.

U.S. citizens and residents living in Israel or another country outside of the U.S. are still liable to file U.S. tax returns and report worldwide income. In addition, all U.S. citizens and residents are liable to report their foreign bank and financial account balances via an annual FBAR (Foreign Bank Account Report).

Highlights of New Provisions:

• The Child Tax Credit for 2024 and 2025 is $2,000. The refundable additional child tax credit has increased to $1,700 per child under age 17. Adjustments may be made to these numbers based on your adjusted gross income.

• The IRS has issued additional Crypto Guidelines and plans to continue examining cryptocurrency transactions in search of under-reporters.

• The IRS is allowing U.S. citizens to sign up for an IRS online account via ID.me (an online company that allows people to provide proof of their identity online) to access individual account information including:balances, payments, refund history, ID verification, and more.

• Windfall Elimination Provision (WEP) which became law during the Regan administration adjusted Social Security payments by pensions received in Israel. On January 5, 2025, President Biden signed into law the Social Security Fairness Act which will repeal WEP. This will be retroactive to Social Security payments starting on January 1, 2024. We expect it to take a few months before adjustments on future payments/refunds for those affected by the Act.

Other areas to keep in mind:

• IRS Streamline Procedures for Non-Compliant Taxpayers Living Abroad

In recognition that some U.S. citizens living abroad have failed to file annual U.S. Federal income tax returns and foreign bank account reports (FBARs), the IRS has a streamlined procedure to allow taxpayers to reenter the IRS tax filing system and then be considered in "good standing".

• Higher Education Credit

The American Opportunity Credit ("AOC") can be claimed for qualified tuition and related expenses for any of the first four years of a college or university degree. The credit is up to $2,500 for those paying $4,000 or more in qualifying tuition for an eligible student. 40% of the credit is refundable which allows a taxpayer to receive up to $1,000 cash back for each eligible student claimed on the tax return, even if no income tax is due.

• Tax Retirement Plans / Required Minimum Distributions (RMD) for IRAs'

Within 60 days of a distribution from an Individual Retirement Plan ("IRA"), a taxpayer can roll over the distribution to another retirement plan tax-free. If no rollover is made within 60 days, the taxpayer is required to pay tax on the distribution at ordinary income tax rates. At age 73 you generally must begin to withdraw funds from traditional IRAs on an annual basis and pay the required income tax. The initial payment can be made by April 1 of the year after you have reached age 73. Be aware that if you wait to receive your initial RMD in the following year, you will need to take out 2 RMDs in that year, one for age 73 and one for age 74.

Alan (Avraham) Deutsch is a CPA with more than 30 years' experience. He has a BS in accounting from New York University, an MBA in Finance from New York University and a Post-master's degree in taxation from Pace University. Together with his staff and associates of U.S. and Israeli CPAs, Alan specializes in U.S. and Israeli income tax planning and compliance as well as investment consulting. He and his family made Aliyah in 1993. Deutsch and Associates has seven offices throughout Israel. This email address is being protected from spambots. You need JavaScript enabled to view it..