Don’t Let Two Tax Systems Eat Your Lunch
If filing taxes in one country feels overwhelming, try doing it in two. That’s the reality for Americans living in Israel with U.S. brokerage or IRA accounts. Douglas Goldstein, CFP® teams up with Aryeh Holtz, CPA from Simple Tax, who explains what to file, when to file, and how to avoid the common traps that trip up even the most organized investors.
This blog breaks down how to avoid the most common (and costly) mistakes, including paying taxes in the wrong country first, filing with the wrong forms, or missing out on tax credits entirely. If someone wants to stop overpaying and start filing with confidence, this is the guide.
The “First Bite” Rule: Who Gets to Tax You First?
When it comes to investment returns like dividends, interest, and capital gains, both Israel and the U.S. want a slice. But thanks to a tax treaty, they’ve worked out a system: whoever gets the “first bite” gets to tax the income first. The other country then offers a credit, if the rules are followed correctly. In general, it looks like this:
- Dividends and interest? The U.S. gets the first bite.
- Capital gains? Israel goes first.
This “first bite” rule is critical. Filing in the wrong order, like starting with the U.S. return when Israel should go first, can mean tax credits get disqualified or delayed. That’s when the costs start adding up.
How Cross-Border Filers Get Tripped Up
It’s tempting to assume a 1099 is all that’s needed, but that’s rarely the full story. A lot of Israeli accountants aren’t trained to interpret U.S. investment documents, and a surprising number of American tax preparers don’t know the details of the Israel-U.S. tax treaty.
That’s why Aryeh Holtz recommends starting with an Israeli tax return draft first. Once that’s complete, it becomes much easier to handle the U.S. side correctly, and to ensure any taxes already paid can be credited properly. Miss that step, and someone may find himself amending returns or overpaying by thousands.
This article is for educational purposes only and does not constitute financial, legal, or tax advice. Please consult a qualified professional for personalized guidance.
Want to handle your U.S. investments like a pro? Book your free Cross-Border Financial Evaluation to see how we can help you manage your U.S. accounts from Israel.
To streamline your tax filing and get support from a real CPA, visit www.simpletax.co.il or reach out to Aryeh Holtz, CPA directly through the WhatsApp button on the site.
