06 Dec 2017 End Of Year Tax Planning
The end of the year is a perfect time to assess our financial activities and start planning our next moves. It is also the right time to examine tax strategies and prepare for changes in the hope that we will be able to save a few dollars.
Tax planning has become even more urgent this year following the US Senate’s approval of the Trump administration tax reform, which will introduce changes that will affect all American citizens.
US citizens living in Israel and non-citizens with US assets are advised to take some concrete steps including:
- Pay all state, local and real estate taxes for 2017 before year-end
- Pay any moving expenses and alimony before 2018
- Defer long-term capital gains until 2018
- Pay any miscellaneous deductions before year-end
- Defer any corporate income until 2018
The tax reform is obviously a most dramatic development; here are some other changes that you should be aware of:
- Teudot Sal becoming PFICs – Until recently, the recommendation for investors trying to stay away from the negative US tax effects of Passive Foreign Investment Companies (PFICs) was to invest in Exchange Traded Notes (Teudot Sal). This has changed, however, and starting in mid-2018, Teudot Sal will need to be reported as PFICs. American investors should consider selling their holdings in Teudot Sal before the end of the year to avoid unnecessary complications arising from the new status. It is recommended that you consult with an expert as to how this should be done and examine the alternatives.
- Form 5472 for LLCs – Starting with the 2017 tax filing, non-US individuals holding Single Member LLCs (limited liability companies) will need to start filing Form 5472. The IRS is still drafting the revised Form 5472, but it is recommended that you keep track and document any transactions, including contributions, distributions, dissolutions, acquisitions and dispositions.
End of Year Reminders
- 5471 loans – subpart F – Those who control an Israeli (or other foreign) company are advised not to have any outstanding loans to shareholders at the end of the year. This often arises accidentally when people use their company credit card for personal expenses and forget to reimburse the company. If the financials show a loan to shareholders at the end of the year, this may create a US tax liability without a corresponding Israeli tax credit.
- PFICs in general and $25K balances – Non-US mutual funds, or hedge funds, might result in negative tax and filing requirements for US tax filers. If you hold any Passive Foreign Investment Companies (PFICs), make sure to consult an expert before the end of the year in order to plan properly. PFICs include, among others, mutual funds (Kranot Ne’emanut), provident funds (Kupot Gemel) and long-term savings plans, not including employer-funded pension plans, and Teudot Sal, starting in mid-2018.
- Fourth quarter estimates – Those who had tax due last year, or are expecting to have tax due in the coming year, should consider paying fourth quarter estimates. Take into account that the due date for these is January 15.
- State Tax payments – Paying fourth quarter estimates to the state is especially important this year as the suggested tax reform might abolish state taxes deductions. Those who pay in advance in 2017 secure themselves even if the deduction is removed starting in 2018.
- Download year-end statements – Rather than trying to remember past balances when filing FBARs (the end of the year. Report of Foreign Bank and Financial Account) in October, you are advised to download your pension and bank balances at the end of the year.
Below you can find links that can help you get a snapshot of all your Israeli pensions and kupot gemel. Additionally, many Israeli banks’ web sites allow you to see your total account at any time.
- Charity and offsetting losses with gains – Those who had large capital gains this year need to remember that they can offset these gains with capital losses (even better if they are PFIC losses).
Giving charity before the end of the year will also increase deductions. These might not always be helpful, so speak to an expert about your specific situation.
- Gifts – A good option to minimize tax payments is by handing out gifts. Gifts of up to $149,000 can be given to non-US spouses and another $14,000 to anyone else, before a filing requirement is needed. Those who wish to hand out larger gifts can disburse $14,000 before the end of 2017 and another $14,000 in January 2018. This can help reduce the tax on potential gains.
Since there are only a few days left to the end of the year, it is highly recommended to take action now. If you need any more information, please contact us now.
The writer is the manager of the Individual & Partnership Department at Philip Stein & Associates.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice.
You should not act upon the information contained in this publication without obtaining independent professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law. Philip Stein & Associates does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.