Last Updated 2 years ago

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There are several misconceptions regarding the tax benefits of charitable giving, some of them specifically pertaining to US citizens living in Israel. We hope that the below Q&A, along with our video, clears up any confusion and allows you to maximize your deductions.

Q: Can you deduct both US and Israeli charity in both countries?

A: Yes! Due to the tax treaty between the US and Israel, you can get a tax benefit in both countries. You can deduct Israeli (Seif 46 Aleph) contributions in the US, as long as those contributions do not exceed 25% of your Israeli-sourced adjusted gross income. On the flip side, you can deduct American (501(c)(3)) contributions in Israel as long as they do not exceed 25% of the US income that you are declaring in Israel.

Q: How does charity reduce your US taxes?

A: If you itemized your deductions (rather than claiming the standard deduction), your charity will reduce your adjusted gross income (AGI) dollar for dollar. You can deduct up to 60% of your AGI, with any excess charitable deduction carrying forward for 5 years. For the 2020 tax year only, you can deduct up to 100% of your AGI. Note that these limitations are different if donating appreciated stock or via a donor advised fund.

Q: Can you deduct charity in the US if you take the standard deduction?

A: Starting on the 2020 tax return you can deduct up to $300 of charity, even if you do not itemize.

Q: How does charity reduce your Israeli taxes?

A: For every shekel you donate, you receive an actual tax credit of 35 agurot. In other words, 35% of the charity you give will be a refundable credit on your Israeli tax return. Limits will apply if you give more than 30% of your income or over 9,350,000 NIS in one year, with the excess charity carrying over to a future year.

Q: Should you donate to Israeli or US charities?

A: As a general rule, you should donate in the country where you have income. If you have both Israeli & US source income, either can work. Keep in mind that if you rely on all of your Israeli taxes paid as a credit against US taxes, giving charity in Israel will give you a tax refund in Israel, which could potentially lead to a greater US tax liability.

Bottom line: Save those receipts! They may help you more than you realize. When filing in Israel you will need the actual physical receipts, so don’t just scan and toss them!

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