Tax recommendations for the end of 2021 Important
The tax tips and recommendations detailed in this article are valid until 12/31/2021, so don't miss out!
As we approach the end of the calendar and tax year, and in view of the recent changes in Israeli taxation, we've decided to provide you with a useful roundup of the last things you need to remember as the year draws to a close.
It is important to obtain information on the contributions and other payments you make, whether you are self-employed or employed, in order to optimize your tax obligations in Israel.
It goes without saying that tax optimization should not be the only point to consider when making pension contributions and other payments. Other points are equally important, such as your future savings and the preservation of your rights.
Pension contributions in Israel
First of all, here's a quick summary of the law governing retirement in Israel, when you're self-employed. (Ossek Patour or Ossek Mourché):
Since January 1, 2017 self-employed people have been obliged to contribute to their retirement. This law was passed to protect self-employed people who weren't thinking about the future and found themselves with nothing when retirement day came.
Read also: Retirement becomes compulsory for the self-employed.
Here are the main contribution rules for the self-employed:
- All self-employed people between the ages of 21 and 55 are required to contribute.
- The amount that the self-employed person must contribute is up to the average wage, i.e. 10,551 shekels for the year 2021.
- A self-employed person who is also an employee does not have to make any additional contributions. This is because they contribute the necessary sums for their retirement via their salary.
- The amount of the contribution is the result of the expected profit. In concrete terms, a self-employed person generating a monthly profit of 10,762 shekels or more will have to contribute up to the maximum sum of 897 shekels per month.
Of course, you can contribute more if you feel like it, but the tax benefits are limited to this ceiling.
Loss of working capacity insurance - ביטוח בגין אובדן כושר עבודה
If you contribute a sum each month to cover a possible incapacity to work in Israel, you should be aware that the tax authorities recognize this contribution as a business expense. This expense can amount to up to 3.5% of your income. However, it is capped at 10,551 shekels per year.
Keren hichtalmoute - Training fund
Keren Hichtalmoute is Israel's favorite investment. The maximum amount you can contribute is 11,700 shekels or 4.5% of your income. (Income limit for the self-employed: 263,000 shekels). From a tax point of view, you can earn up to 5,900 shekels.
However, you can contribute an additional sum of up to 18,480 shekels. Profits from this investment are tax-free when you withdraw them, subject to certain conditions.
Payments to bitouah leoumi
When you pay installments (מקדמות) to Bituah Leoumi, you receive 52% of that installment as a tax-deductible expense. Therefore, we recommend that you pay the December installment no later than 12/31/2021. This will enable you to generate an additional expense, and will reduce your annual taxable profit.
Less profit automatically means less tax to pay this year.
Optimize your company's profits
As the year 2021 draws to a close, it's a good idea to take stock of your fiscal year, to take advantage of any tax optimization opportunities that may be available.
But don't wait until 2022 - it's already (probably) too late.
Property income in Israel (for individuals)
In 2021, rental income is tax-exempt up to a ceiling from 5,070 Shekels / month
. In other words, if you earned less than 60,840 shekels in 2021 through your residential property income, you will be exempt from paying taxes in Israel.
If you exceed this threshold, you can opt for 2 regimes:
- Lump-sum payment of 10% on all rents collected.
In this case, no deductions or tax credits are taken into account. You can opt for this system provided you declare and pay up to 01/30/2022.
- Payment based on actual income generated by the property.
In this case, several factors come into play that can significantly reduce your tax liability on your property income in Israel. Very often, this system is more advantageous from a tax point of view. We therefore always recommend that you carry out a study before "jumping" into the 10% package.
Tax payments for 2021
Finally, it is important to point out that taxes for the 2021 tax year, which are paid until 01/31/2022, will not include agios and indexations.
How can we optimize your tax situation for 2021?
At Dray & Dray, we offer you the ideal support solution, enabling you to optimize your tax resources in full compliance with the law.
As a firm specializing in tax optimization, we ensure that you receive top-quality advice and support, and provide you with regular optimization tips that will enable you to minimize your tax obligations.[/vc_column_text][/vc_column][/vc_row]