U.S. Citizen Living in Israel

If you are an American citizen living in Israel you have tax reporting requirements to the IRS.

You need to report your foreign accounts

You must report your accounts with an FBAR form, which you send to the IRS. Neglecting to report information leaves you open to stiff fines and penalties.

Foreign banks, too

If you think that you can get away without reporting to the IRS because you put your money in a non-American bank, reconsider. FATCA (Foreign Account Tax Compliance Act) requires overseas financial institutions to report information about accounts held by American citizens to America. This bureaucratic requirement is why many foreign banks and brokerage houses no longer welcome American clients. If foreign banks neglect to report their American clients, they are liable to American penalties.

Should you make your grandchildren American citizens?

Many American olim want to make their Israeli grandchildren American citizens. While the gift of a U.S. passport might be nice, be aware that this gift also bestows upon them the obligation to file a tax return, and possibly the FBAR form, every year. In addition, as American citizens they will face more obstacles in opening an Israeli bank account, investing in mutual funds, and possibly entering managerial financial positions in Israeli companies. Before you bestow this gift on your grandchildren, make sure you (and their parents) are fully aware of the possible side effects of American citizenship.

Making things easier

As a U.S. citizen living in Israel, American tax reporting is unavoidable. But there are ways to make the process a little easier. For example, if the majority of your investments were in a U.S. brokerage account, you wouldn’t have to fill out so many lines on the FBAR. We have more than two decades of experience in helping Americans living in Israel to organize their cross-border finances. Call us for a review of your American portfolio, or for help in opening an American brokerage account.

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published October 19, 2015.

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