A tax year is the 12-month period the government uses to measure your income and calculate taxes.
For U.S. citizens in Israel, it means tracking income, deductions, and credits over a specified period and reporting them on an annual tax return.
While this may sound straightforward, different countries (and even businesses within those countries) may follow different types of tax years.
Most individuals use the calendar tax year, which runs from January 1 through December 31. The IRS assumes this period unless a taxpayer formally elects another option. Using the calendar year aligns your income reporting with the standard calendar. This can significantly simplify tracking wages and investment income.
For U.S. citizens living in Israel, the calendar tax year is usually the default for personal returns. It also makes coordinating with foreign income and tax credits easier.
A fiscal tax year is any 12-month period ending on the last day of a month other than December. Corporations and certain businesses often choose fiscal years in order to match their operational cycle. For example, an outdoor equipment retailer may decide to end a tax year in the fall after their busiest season (summer) ends.
To use a fiscal year instead of the calendar tax year, U.S. taxpayers need approval from the IRS. For individuals, this option is rare, since the calendar year is standard.
No matter which tax year you use, the tax filing deadline matters just as much as the reporting period.
Missing these deadlines can lead to penalties and interest, even if you qualify for foreign tax credits or exclusions.
Israel also uses a calendar tax year that runs from January 1 through December 31. However, filing rules differ: Israeli residents typically submit their annual returns by April 30, unless they are granted an extension. American citizens in Israel must coordinate Israeli and U.S. filing requirements and determine when the U.S.-Israel Tax Treaty applies.
This coordination is especially important when applying the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit.
If you need further assistance with the concept of tax year and timely tax filing, Philip Stein & Associates is here to help. Contact us for a consultation today.