Los Angeles is home to one of the largest Israeli-American communities in the country, and many of its members live across two financial systems. You may keep a bank account at Leumi or Hapoalim, own an apartment in Tel Aviv, hold a keren hishtalmut from a previous job, or run a business with partners on both sides of the ocean. None of that is unusual. What catches people off guard is that the IRS expects every one of those connections to be reported, and the penalties for missing a form can be far larger than the tax itself.
At D Tax Accounting, we provide tax preparation services in Los Angeles for individuals, families, and business owners with income, accounts, or assets in Israel. This guide explains the main US-Israel reporting requirements, where people most often go wrong, and how to get everything in order.
Key Takeaways
The US taxes you on worldwide income: If you are a US citizen or green card holder, Israeli income, accounts, and assets belong on your US filings even if you also pay tax in Israel.
Reporting is separate from paying: Forms like the FBAR and Form 8938 are required whether or not you owe any tax, and the penalties for skipping them are steep.
Most problems are fixable: If you missed reporting in earlier years, there are IRS programs designed for honest mistakes. Acting before the IRS contacts you matters.
Why Israeli-Americans Face Extra Reporting Requirements
The United States taxes citizens and permanent residents on their worldwide income, no matter where they live or where the income is earned. Israel, for its part, taxes its residents on worldwide income too. The US-Israel tax treaty and US credits for foreign taxes exist to reduce double taxation, but they work inside your US return. They do not replace filing it.
This surprises many people who moved to Los Angeles years ago and assumed their Israeli accounts were simply part of their past. It also surprises people who benefited from Israel's ten-year tax exemption for new immigrants and returning residents. That exemption is an Israeli rule. It does not switch off US reporting.
Reporting Israeli Bank and Investment Accounts: FBAR and Form 8938
Two separate filings cover foreign financial accounts, and many Israeli-Americans need both.
FBAR (FinCEN Form 114): Required if the combined value of your foreign accounts exceeded $10,000 at any point during the year. It is filed electronically with FinCEN, not with your tax return, and is due April 15 with an automatic extension to October 15.
Form 8938: Filed with your tax return when your foreign financial assets exceed higher thresholds that depend on your filing status and where you live. A married couple filing jointly in the US, for example, generally crosses the line at $100,000 on the last day of the year or $150,000 at any time during it.
Accounts that get overlooked include joint accounts with parents, old savings accounts opened for children, brokerage and provident accounts, and accounts where you only have signing authority. Willful failures can lead to penalties of up to half the account balance, so it is worth checking every account, including the small ones.
Avoiding Double Taxation: Foreign Tax Credits and the Treaty
When Israel taxes income that the US also taxes, you can usually claim a foreign tax credit on Form 1116 to offset your US tax. The credit is limited to the US tax attributable to that income, so the outcome depends on how the two countries classify and source each item. Treaty provisions can also affect pensions, dividends, and certain gains.
Two practical points deserve attention. First, everything must be reported in US dollars, so shekel income, balances, and sale proceeds need to be converted correctly. Second, California generally does not follow the federal foreign tax credit, so income that is fully offset at the federal level can still be taxed by the state. This is a local detail that out-of-state advisors often miss.
Israeli Pensions, Savings Plans, and Severance
Israeli retirement and savings vehicles, including pension funds, kupot gemel, and keren hishtalmut accounts, are often tax-favored in Israel. That status does not automatically carry over to the US. Depending on how a plan is structured, it may generate annual income on your US return, require additional information reporting such as Forms 3520 and 3520-A, or be treated differently from a US retirement account.
Severance payments and lump-sum withdrawals raise their own questions about timing and the foreign tax credit. This is one of the areas where professional review pays for itself, because the right answer depends on the specific plan.
Israeli Property: Rental Income, Sales, and Gifts
Rental income: Rent from an apartment in Israel is reportable in the US, with expenses and depreciation calculated under US rules, which can differ from what Israel allows.
Selling property: A sale can be taxed in both countries. Foreign tax credits help, but currency movements can create a US gain or loss that does not match the Israeli calculation, especially when there is a mortgage in shekels.
Gifts and inheritances: Receiving a gift or inheritance from a foreign relative is generally not taxable, but if the total passes $100,000 in a year you may need to file Form 3520. Missing it can carry a penalty even though no tax is due.
Owning a Business or Shares in Israel
If you own 10% or more of an Israeli company, you may need to file Form 5471 with your US return, and each missed form can carry a $10,000 penalty. Holding Israeli mutual funds can trigger the PFIC rules and Form 8621, which tax certain foreign investment funds in a way that surprises many investors.
Business owners with operations in both countries also need clean records. Our bookkeeping and accounting services keep income and expenses organized across currencies, and our payroll services help when your Los Angeles business has employees or contractors. For more on that topic, see our guide to payroll services in Los Angeles.
Common Mistakes We See
Assuming Israeli accounts do not need to be reported because they hold modest balances or were opened long ago
Filing an FBAR but missing Form 8938, or the other way around
Treating an Israeli pension or savings plan as tax-deferred without checking how the US sees it
Reporting Israeli income in shekels instead of converting to dollars
Skipping Form 3520 after receiving a large gift or inheritance from family in Israel
Relying on the Israeli accountant alone, who may not handle US international reporting
What If You Missed Reporting in Past Years?
If you realize you missed an FBAR, Form 8938, or income from Israel, you are far from alone. The IRS offers programs for taxpayers whose omissions were not willful, including the Streamlined Filing Compliance Procedures and a process for submitting late FBARs. Your options are usually best when you come forward on your own, before the IRS contacts you. If back filings and balances are involved, our IRS tax resolution services can help you plan the next steps.
How D Tax Accounting Helps
We help Israeli-American individuals, families, and business owners across Los Angeles bring US and Israeli financial activity into one clear picture. Our services for cross-border clients include:
US tax return preparation that includes Israeli income, accounts, and assets
FBAR and Form 8938 review and preparation
Foreign tax credit and treaty analysis
Reporting for Israeli pensions, savings plans, property, and gifts
Ongoing bookkeeping and payroll for businesses with operations in both countries
Coordination with your Israeli accountant so both sides of your filings match
Ready to get your US-Israel reporting right? Book a free consultation or contact our team to talk through your situation.
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Frequently Asked Questions
Do I have to file a US return if I also pay tax in Israel? Yes, if you are a US citizen or green card holder. Paying tax in Israel does not replace your US filing, but foreign tax credits and the treaty can reduce or eliminate the US tax due on the same income.
Do I need to report an Israeli bank account with a small balance? The FBAR applies when the combined value of all your foreign accounts exceeds $10,000 at any time during the year. Several small accounts can add up past that line, so it is worth adding them together.
Is my keren hishtalmut or pension taxed in the US? It depends on the structure of the plan and how the US treats it. Some plans create reportable income or additional filings even if you have not withdrawn anything, so each one should be reviewed individually.
I never filed an FBAR. Am I in trouble? Not necessarily. The IRS has procedures for people whose omissions were not willful, and the best results usually come from correcting the issue before the IRS contacts you.
Can you work with my accountant in Israel? Yes. We coordinate with your Israeli advisor so that your US and Israeli filings are consistent with each other.
This article provides general information, not tax or legal advice. Thresholds, forms, and procedures change, and every situation is different. Contact D Tax Accounting to discuss your specific circumstances.
