deductibles

January 4, 2011

Jacob wrote:

Gidon, thanks for your blog, it’s really helpful! I am at the point of making my decision now – patur or murshe. and before i go to a tax advisor i’d like to know as much as i can. Can you please advise, whether osek patur can have deductibles like partial car expenses, gas, electricity, office rent, etc? I do not mean VAT, but reduction of the final profit i’ll get to pay taxes from? Or the taxes are calculated from my “brutto” income?

Someone also said, i cannot do web site support and development as osek patur, even if i get less than64k a year. Is it really so?

I’ll really appreciate your help.

Here’s my answer:

Remember, I am not an official tax advisor, just a fellow shnook who tries to help and be helped;-)

From my understanding, an Osek Patur makes so little money, they are patur (not required to) collect and foward/pay VAT tot he VAT authorities. This comes to about 64K NIS a year (give or take a few 10k’s).  From my understanding, if you are making so little money a year, you are not going to be paying mas hachnasa to the mas hachnasa authorities, either. So “deductibles” are immaterial. The idea of deductibles is to deduct their value from your brutto gross income, and then calculate the tax you owe. Since you are starting with zero tax owed, you can’t go lower than that:-) PS this is what happens to me and so I am lax with collecting “deductible expense” receipts like cab fares, ink, computer, etc.

If you do end up owing taxes cause you make more than the minimum, than the bottom line is easy: was this expense instrumental in generating income for you. Would you have been able to generate income without expending for this. The partial expenses you list are maybe hazier than an ink cartridge, but you can and should ask on internet forums, this is a simple question.

>>Someone also said, i cannot do web site support and development as osek patur, even if i get less than64k a year. Is it really so?

Don’t tell that person about me, that’s exactly what I do:-) My declared business (iirc – they strangely do not give you a copy of your request to open a business including the field where you describe your services – I spent about an hour crafting that sentence!) was “Office Services, Translations and Internet services”.  I think “sherutei Internet” should do the trick for you too.

 


Comprehensive guide to opening a business in Israel

June 30, 2010

I am so glad that I did not write this post such a bombastic title, I am not deserving!

As many of you know, Rachel Berger is a senior executive (to use Old Countryspeak) at Nefesh Benefesh, and if I haven’t plugged that organization until now on my blog, my bad, here it is.

Anyway, somehow I came across this guide, and then found it was barely findable, so I am assuming Rachel won’t mind my posting it here. As a non-professional, I do not attest to the correctness of her writing, nor of mine, blah blah blah. YMMV.

********************************************

Date: Aug 21 2009 – 5:46pm

Establishing a Business

Step 1: Opening a File for VAT
To open a Tik (file) for Ma’am (VAT), you will need to go to the local tax office. To find the local tax office, check online or in a phone directory under “Mas Hachnasa” (income tax). You will need to bring your Teudat Zehut (ID card) with you and fill out forms with the required information. The type of Tik that you open depends on how much you plan to make a year, i.e., the scope of your business.

If you expect to make under 70,000 NIS: Open a Tik for an Osek Patur, which means that you are exempt from Ma’am and – basically – do not need to interface with the income tax offices, which is very convenient. You will need to buy a Pinkas Kabalot (receipt book) so that you can issue receipts for your clients. A Pinkas Kabalot can be found in any office store. can will use the receipts from this Pinkas for bookkeeping purposes.

If you expect to earn over 70,000 NIS: Open a Tik for an Osek Morshe. You will receive an official Ma’am book. Clients will be charged Ma’am and you will basically be required to forward the Ma’am that they pay to the Ma’am office. When you sign up, make sure to ask the exact details of where and how you make the payment.

Step 2: Mas Hachnasa (Income Tax Authorities)
To open a file as an Oved Atzmai (freelancer) , you need to take the Osek Patur or Osek Morshe certificate to the Mas Hachnasa (income tax) office. Find the department in Mas Hachnasa that handles freelancer, and fill out the necessary paperwork. Once you’ve completed the registration, you will be required to submit a tax form once a year, which you will be receiving in the mail from the tax office.

Buy an accountant book – Sefer Tikbulim V’Tashlumim – at any office store, and use it to keep track of your payments and expenses. If you are careful about recording your transactions, it will make it easier to fill out the annual tax form.

Save all of your receipts and relevant paperwork, for a period of seven years. While noone wants to be audited, it does happen, and the only way to protect oneself is by saving all of the necessary documents.

An Atzmai who works from home can deduct some expenses from home bills such as electricity, internet, phone costs, Arnona (property tax), etc. The percentage of the deduction is based on the area used for the business. For example, if a house has four room and one of the rooms is used for business, the deduction that is recognized would be a quarter of the total cost. For more information about what can be deducted, speak to a qualified accountant.

Step 3: Bituach Leumi
When you open a file at Mas Hachnasa, a file is automatically opened for you at Bituach Leumi (National Insurance Institute).

The Bituach Leumi office will send you a form requesting your employment details, including any pay stubs that you have, and an Ishur (statement) from the bank providing that you are the owner of your bank account.

Once you submit this form, Bituach Leumi deducts 9% to 16% of your income as either Bituach Leumi or Mas Briut, depending on how much money you earn. The exact amount that will be deducted is listed on the Bituach Leumi website (HYPERLINK “http://www.btl.gov.il/”www.btl.gov. il).

Step 4: Declaration of Capital
Approximately every four years, you will be asked to submit a declaration which indicates your net worth, including your earnings and any properties that you own. It is recommended that an accountant with expertise in Hats’harat Hon prepare this form on your behalf.

Rachel Berger
Senior Career and Business Developer
NefeshB’Nefesh


Second time it gets easier…

May 20, 2010

Well, it seems I’ve been an atzmai for about two years two months!

I apologize to you, my faithful readers, for not updating this blog more frequently, not to mention for not providing more significant and relevant and helpful (and authoritative) information. You can dock my salary:-)

Seriously, I would appreciate feedback, which would motivate me to write more…

Now that we’ve gotten that off of my chest, here are my comments on completing a Doch Shnati Annual Tax Return:

1. So far, far the second year running, the deadline has been extended from April 30 till May 31. This might be the third year running, or perhaps this happen every year, but I’ve only been watching this year and last. A little odd, as it is hard to imagine a reason to extend that they couldn’t have foreseen, but Welcome To Israel, I guess..

2. Unfortunately, I did not photocopy my Doch Return form from last year, or at least I cannot find it:-), as having it with the questions I had might have made things easier for me this year. The good news is that it ended up being not that hard at all anyway.

3. Here are the questions that I wrote down and got answered by Zehava when I went for the guidance hours:

Line 3: What is the sum that my wife reports (her Tofes 106 has a whole bunch of numbers)

Sections Daled through Yod: Need I cross out the fields that I do not have to fill out?

Line 43: Is this relevant for my wife?

Line 45: Is this relevant for me?

Line 62: Is this relevant for my wife and me?

Line 67: Donations – need I bother submitting?

Line 69: I live in Maale Adumim – is this relevant?

Line 70: Is this relevant for my wife and me or just for me?

Line 71: What do I report for my wife, and is this relevant for me (I did some work during the national elections for a party, they said the 25% tax [ouch!] is definitely non-refundable)?

No line: Need I complete form 1320?

4. The answers:

Sections that I do not need to fill out do not need to be crossed out – don’t bother.

The lion’s share of my questions dealt with my wife’s tofes 106. (Lines 3, 43, 44, 49, 50, 64, 71). Here is the solution, which would have saved me a lot of time with Zehava, and will save you time:

Every line on the Doch Shnati form has a field, often two (for the filer and for his/her spouse). Each field has a code number clearly associated with it. For example, line question 43 has field code 218 for the filer and 219 for the spouse.

NOW, look at the Tofes 106 – every relevant line has a Mem Heh code associated with it. Guess what – that Mem Heh stands for Mas Hachnasa! And guess what – those code numbers match the code numbers on the Doch Shnati form that I discussed in the last paragraph! So all you have to do is connect the dots. Every line in your spouse’s Tofes 106 that has a Code Mem Heh in it, find the identical code on the Doch Shnati, and copy the sum on the Tofes 106 belonging to that code number into the associated field on the Doch Shnati. Simple and fun as that!

I hope this is as clear as it is to me.

The only other questions I had:

Line 45: my Bituach Leumi payments: well, since I know I am below the minimum, I know my payments are about 100 NIS a month. Zehava wasn’t too worried about my reporting the exact total of my payments to Bituach Leumi, so I just wrote down 1300 (one month for good luck). YMMV – you should look this up in preparation for filling out the Doch Shnati and get it exact.

Line 62: Bituach Hayyim Life Insurance: I will find the annual reports I get from the companies that send me for my wife’s and my policies, I expect that there will be a Mem Heh code on those pages too, at least it shouldn’t be too difficult to figure out what numbers go in these fields. As with the philanthropic donations below, this information should result in a tax refund!

Line 67: Charity donations: find all the receipts of donations to Malkarim (NPOs) that say “mukar letzarkei mas hachnasa” and submit them in the original, you evidently get a third back if you have donated more than 400 NIS this year. (if you donated less than about 10% of your income, you should consider upping your donations. Thus spake your conscience:-)

Line 69: Maale Adumim is not a special area, probably just Sderot and Kiryat Shmoneh, but YMMV. Couldn’t hurt to fill out if you think it might be helpful.

Line 70: I just copied from Line 1 – my reported income (sum total of all receipts issued as reported in my receipt book). Form 1320 is a worksheet that helps you clarify your deductions (like transportation, office supplies, etc. – expenses needed to generate income). Since I knew my gross income before deductions was low enough to report as is without calculating deductions, I just did that. Hopefully next year I will happily fill out form 1320:-).

Line 71: In fact, the 25% tax paid on work for political parties is unrefundable. Ouch indeed.

SO… My action items are:

1. find those Life Insurance annual receipts and enter the relevant number in fields 036 and 081, Line 62.

2. Find all my charity receipts and enter the relevant number in fields 037 and 237, Line 67.

3. Complete my personal details in the Yesh Lershom Pratim Adkaniim box (the third section on Page 1). Zehava had kindly pasted my sticker in the section above this.

4. Complete the Bank Details on Line 76, so they can deposit my refund (yay).

5. Submit the Doch with spouse’s Tofes 106, Life Insurance original receipts, charitable donations original receipts, and tofes 1320, to the Information Window at mas Hachnasa, 216 Rehov Yaffo, sixth floor. Get it stamped and get a Meushar certified copy.

6. Do all this before June 1.

PS I see that last year’s entry might be helpful too:

https://atzmai.wordpress.com/2009/04/28/mas-hachnasa-advice-hours/

https://atzmai.wordpress.com/2009/05/22/mazal-tov-submitted-hatzharat-hon-and-doch-shnati/

Here’s a site/page that looks good too:

http://www.plusfinances.com/Income-tax.html

PS from this page: https://atzmai.wordpress.com/2008/06/26/bituach-leumi-take-two/ I learned that I am actually probably paying 148 NIS a month to Bituach Leumi. I should review this blog more often!


New Ptor from Mikdamot

June 21, 2009

I got a notice in the mail saying:

Re: Postponement (Hash-hayah) of Increase of Prepayments for Tax year 2009

Your 2008 tax return was received in your file.

We see that it justifies increasing your pre-payments to 16%

according to clause 180 B 1 in the Income Tax Code.

Please check the correctness of these details, because if you do not do so by 3 July 2009, that increase will be activated.

Now, this surprises me, because, as my loyal blog readers know, I made much less than the 50,000 NIS ceiling requiring pre-payments (in fact, requiring payments at all!), and I was told that I would NOT need to make prepayments.

I assume this is just the system justifying itself.

Anyway, I found a great blog that explains what to do in plain English:-), so I found the post that talks about submitting a request for an exemption (ptor) from prepayments. Unfortunately, I had not written the name, phone number, or fax number of the person I needed to be in touch with, so hoping that she won’t retire by next year, here is the info:

For Jerusalem area small businesses (NOT Jerusalem itself!) you have to use Pkid Shuma Yerushalayim Shtayim (#2) which is near the Tachana Merkazit (actually, next to Center One)

Hebrew info page:  http://ozar.mof.gov.il/taxes/cities/jeru.asp

So I filled out the form 2216/א at http://www.mof.gov.il/taxes/tfasim_mas.htm, called 02-5019203, spoke to Gilad (probably Tekoa, the Deputy Tax Assessor) who told me to send a fax to “Attention: Dafna” at 02-5019250.

My guess is that that will do the trick.

I will bli neder report back here when I get the official letter saying that in fact I am exempt from prepayments, or if they decide that I must prepay.

If anyone wants me to spend time translating Form 2216A, please ask.


If I can do it, so can you…

February 13, 2008

If you can provide a service to others that they are willing to pay for, or own an asset that generates income, you should consider opening your own “tik” (file) in Israel.

This is one way that you can provide these services, get paid for them, and fork over taxes and fees to Governmental and quasi-governmental bureaucracies as legally required, and find grace and perceived wisdom in the eyes of God and man. Definitely Win-Win-Win.

On the other hand, conventional wisdom dictates that opening up a tik in Israel is tantamount to standing outside a police station with a neon sign flashing over your head saying “I’m a Thief! Arrest, Interrogate, and Fine Me!”

An incorrigible optimist, I believe in the idea behind Israel’s Basic Law: Freedom of Occupation (1994) (www.knesset.gov.il/laws/special/eng/basic4_eng.htm), namely, it is proper and in the State’s interest to enable and even empower individuals to make an honest living.

Personally, after years of providing these services through Yeul Sachir, I have decided that I want to open a tik and become an osek patur, AKA osek za’ir – small business.This blog is a diary of my experiences, discussions, and interfacing with officialdom, with as many resources that I can find or create, to make your experience doing the same as easy as possible.