Wednesday, 20 March 2013

Snow Birds Beware of US Tax Residency

Even if you spend less than 183 days each year in the US you can be deemed US resident for tax purposes.  What that means is that you will become liable US income tax on your worldwide income and possibly subject to estate tax as well.

 How can this happen? Based on the following formula:

If all the days in the current year + 1/3 of the days in the last year + 1/6 of the days of the year before the last year = 183 days or more, then you are a deemed resident of the US. 

Example 123 +1/3*120+1/6*120= 183 days.  So be careful if you spend December January, February and three days anywhere in the  US you may fall into this category.

Although you can try applying the tax treaty tie breaker rule  to get out of this it is much better not to have to do that.  It is a headache. However, to address the substantial presence test one should file a form F8840.  See the link below.

Closer Connection Exception for Aliens

Check the following detailed definition from the IRS website.

http://www.irs.gov/taxtopics/tc851.html

For more information on Canadian taxes please visit my website

www.tavana.ca



This blog is for general information only and cannot replace professional advice.
The reader is invited to contact the writer to discuss the contents of the newsletter.
Readers are advised to seek professional advice before acting on the material
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