Natalie Alter # Post 2 ** Possession of property in the United States under…

Natalie Alter

# Post 2

** Possession of property in the United States under private registration or under LLC? **

One of the most common questions asked by US real estate developers is whether to hold the property in a private registry or under an LLC.

I will try to explain in a simple way the concepts that are worth knowing about the subject, and especially - the advantages and disadvantages of each choice.

** So what is an LLC anyway? **

Similar to Company Ltd. LLC is considered a separate legal entity from the holders of its rights.

Those who hold the LLC rights are called ** members **.

The LLC is registered with the Registrar of the LLC in the specific country in which it is incorporated in the United States.

** What is important to know? **

The obligations of the rights holders in this form of holding are under limited warranty.

That is to say - the debt is limited to the amount that the rights holders undertook to invest in the establishment documents of the LLC.

The liability of the shareholders of the company is limited to the amount of their investment in the company, the so-called ** limitation of liability **.

This is the main reason that motivates investors to hold the property under LLC and not in a private listing.

** Why is incorporation within an LLC considered flexible and easier to operate? **

This form of incorporation is considered more flexible and easier for both the LLC manager and investors for the following reasons:

1. Incorporation within the LLC is not subject to company laws and does not require institutions such as a board of directors and a shareholders' meeting at all.

2. It can be determined that a dividend will not be distributed proportionally among the rights holders.

3. The establishment of the LLC and its activities are based on an establishment agreement similar to the establishment of a partnership and not on an official document as the company's articles of association.

4. Limitation of Liability.

** How is LLC registered in the United States? **

A distinction must be made between an LLC with a single member and one with two or more members.

** Single member LLC ** - Held by a single rights holder.
Is considered a completely transparent body for tax purposes in the United States and all of its income and losses are directly attributable to its sole rights holder.
In addition, it does not file reports in the United States.

** With two or more members ** - The holding of the company is conducted in a similar way to a partnership.

* Partnership - a form of association designed to enable a person to work with others to generate income together, regardless of whether the parties to that partnership are individuals or companies, and whether a partnership is registered in the Partnership Registry or not.

The LLC in this case files Report 1065 and gives each member their share of the partnership capital.

Under US tax law, as long as the LLC's account in the LLC is higher than zero, the distribution of funds will not be considered income, as it is a distribution at the expense of funds that the member has transferred to the LLC.

Finally, we need to fill out two reports - Report 1040 which is a federal report (to the US) plus the state level report.

** How is all this reflected in the State of Israel? **

► ** According to Income Tax Circulars 3/2002 and 5/2004 - LLC is a company for all intents and purposes (this even received support in the ruling). **

► ** The Mismatch Problem **: In Israel, tax law treats LLC as a company - that is, profits that are distributed will be considered as a dividend, while in the US the reference is as a transparent partnership.

* Transparent partnership - an arrangement according to which the company's income and expenses are attributed to the shareholders in accordance with their shares in the right to profits in the company.

* Dividend tax - a tax imposed on a dividend distributed by a company to its shareholders.
In Israel, receiving a dividend is taxable income like any other income.
The result: an Israeli resident will pay taxes without having any income under Israeli law.

In the future when the profits continue we will see them as a dividend without the ability to offset the foreign tax.

► ** Solution proposed by the Tax Authority under Circular 5/2004 ** ** - As long as the LLC is transparent in the United States, its rights holders may report its income in Israel on an ongoing basis and use it as a credit for foreign taxes paid in the United States. After that, the distribution of its profits is not dissolved. Must be consistent and take the same approach every year, starting with the first year.

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Natalie Alter

# Post 4

** Family company or limited company **

By working properly with the right professionals we can enjoy the benefits of sole taxation in real estate profits.

In the post we will talk about a family company, a limited company, where it meets us and most importantly - how you can save a lot of money.

So without further ado, let's get started:

* ** Company Ltd. ** - Limited liability company. A company Ltd. may engage in any legal matter that it declares has arisen for this purpose, and it has a separation between the people who establish it and are its owners and its assets and accounts. A company can be private or public, listed on a stock exchange or a family company, but it is considered an economic legal entity in itself that obeys laws regarding the management of its funds and assets and payments and liabilities to suppliers and customers.

In short - the company is legally independent, and its owners enjoy a limitation of liability - it is not possible to tie the company's debts to the company's owners.

** Family Company Home Company ** - A family company is like a limited company, it operates according to the Companies Law, but the only difference between it and a regular limited company is in calculating the taxes paid to the income tax.

In terms of income tax, a family company is taxed as if it were an individual and not a limited company. Therefore the tax calculations are calculated according to the single taxation of the taxpayer representing the company.

On the face of it, it seems better to pay corporation tax of twenty-five percent over individual tax that can reach forty-eight percent of income. But a family company has a number of advantages and proper conduct will allow the company to enjoy the unique benefits and also take advantage of the protection afforded by a limited company.

There are conditions that must be met in order to register as a family company, the main ones being:

A company controlled by a maximum of five people.

2. A society in which the public has no real interest.

3. The company is required to hold one of the following assets - building, land, cash, shares of a home company.

** What are the benefits of a family company? **

While the distribution of dividends to shareholders in a regular limited company entails the payment of tax, the great advantage of a family company is that dividend distributions to the shareholders in the family company are exempt from tax payments.

If the representative taxpayer has several companies, some of which gain and some lose, it is possible to offset losses of one company from the profits of the other company. This method is common among contractors who set up a separate company for each construction project.

If the representative taxpayer has tax reliefs such as credit points due to a family with many children or due to disability and more, the whole family will be able to enjoy these credit points and the tax relief they provide.

If the representative taxpayer is an employee who owns a losing company, it is possible to offset the company's losses against the income from the salary and receive tax refunds.

A family company is one of the "pipe companies". A company defined as a family company gives its shareholders a unique status. The Company's income will be attributed to each of the shareholders directly and will be taxed according to the marginal tax rate imposed on it. Allegedly, in most cases, the individual will prefer that the tax levied on the company's income be according to the corporation tax, which is significantly lower than the maximum marginal tax imposed on individuals. However, basic tax planning (but one that is controversial in Gaza) would say that when a company makes a profit the shareholder will leave the company in its normal position. From the moment she loses, he will become a family company, deducting the loss from his personal income. It should be emphasized that no more for the taxpayer ie for the owner of the family company to offset losses at the personal level during the period in which the company was normal, the company will be able to offset the losses only against future profits.

** How can a family or home company help me save tax? **

I bring you back to one of the previous posts which explained that income tax allows a company to be viewed and only for the purpose of offsetting the tax.

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