Traveling to the U.S. for extended periods of time - Snowbird Calculations Part 2

Here is an example from our associates at Shea, Nerland, Calnan:

Mr. and Mrs. Sunshine are residents of Canada and have a winter home in Florida.  For the past several years Mr. and Mrs. Sunshine have spent a portion of the winter months in Florida and also some time in the US during other parts of the year.

In 2008, Mr. and Mrs. Sunshine spent 3 months (91 days) in Florida during the winter and an additional 3 weeks (21 days) in the summer.  In 2009, Mr. and Mrs. Sunshine spent 4 months (122 days) in Florida during the winter and a further 2 weeks (14 days) in May.  In 2010, Mr. and Mrs. Sunshine spent 6 weeks (42 days) traveling in the US and another 11 weeks (77 days) at their home in Florida.

Based on the above, the “substantial presence” test would be applied as follows:

Years                  # of days in US                    Multiplier                    Formula Days
2008                       112                             1/6                          18.66
2009                       136                             1/3                          45.33
2010                       119                             1                             119.00
                                                                                              183.00

Mr. and Mrs. Sunshine will therefore be deemed to have been in the US for 183 days during the current year and will meet the Substantial Presence Test.  Although this will effectively result in their being classified as resident aliens, they may be able to use an exception to avoid being liable for US income taxes on their worldwide income.

Even if you find yourself at 183 days or higher you may be able to avoid having to file a U.S. tax return and being double taxed by filing a Close Connections Form (8840) with the IRS.  You must prove that you have a closer connection to Canada by demonstrating that all your ties really are to Canada.  They will look at things like the address of your permanent home, belongings, vehicles, license, businesses, banking relationships and where your income comes from.

So if you are traveling to the U.S. regularly, make these calculations in advance and do your best to stay under the 183 days!  As we continue on this Cross Border series we will begin to move into investing, acquiring and selling real estate and doing business in the U.S. so watch for the next blogs!

Traveling to the U.S. for extended periods of time - Snowbird Calculations Part 1

Traveling across the border for a few weeks is one thing, but staying there for longer periods of time could bring unwanted heat from the IRS.  We are not talking about retirement in the U.S. as that is completely different and would most likely require becoming a U.S. citizen and filing tax returns (1040) with the IRS each year.

Most people are escaping the cold in Canada when they go.  There are many “Snowbirds” that spend their winters in the U.S.  The key to avoid having to report to the IRS is the 183 day rule, also known as the “Substantial Presence Test”.  The more years in a row you travel to the U.S. the more complicated this becomes.

If you do not travel to the U.S. every year then it can be a simple calculation.  If you only travel their for an extended period of time once then simply keep your stay under 183 days and you are fine.  However if you travel to the U.S. each year then there is a 2 and 3 year calculation that you must go by.  If you are across the border 2 years in a row, then you take the current year’s total days in the U.S. plus 1/3 of the prior year’s days in the U.S. and the total of these must be less than 183.  If you are across the border for 3 years in a row, then take the current year’s days in the U.S., plus 1/3 of the prior year’s days, plus 1/6 of the days from 2 years prior and this must equal less than 183.  Here is a chart to understand this:

Year 1 (This yr):       1 day = 1 day

          Year 2 (1 yr ago):    1 day = 1/3 day

          Year 3 (2 yrs ago):   1 day = 1/6 day

I will be discussing this in detail and will be giving an example on my next blog.  Please check back for part 2!