Down south for the winter?

Collins Barrow Clarity Defined" www.collinsbarrow.com Down south for the winter? What you need to know about U.S. taxation Many Canadians migrate south each winter to the warmer climes of the United States. Some mistakenly believe that if they limit their stay to 182 days, a maximum cited by the Internal Revenue Service (IRS), they will avoid being viewed as U.S. residents for income tax purposes. However The IRS reviews the number of days spent in the U.S. over a three-year period, not simply the taxation year in question. For tax purposes, anyone who stays in the U.S. for four months per year is generally considered a resident. View of the IRS To determine tax residency, the IRS employs the Substantial Presence Test (SPT). It counts all of the days you reside in the U.S. during the taxation year, plus one third of the days last year and one sixth of the days from the year before that. 2013 For example Even though this Canadian spent well under 182 days down south in each year, their stay is viewed as exceeding 182 days over three years. Thus, for income tax All If a Canadian spends 121 days down south in 2013, 125 days in 2012 and 136 days in 2011, the SPT will 121 days purposes, the IRS will deem this Canadian a 136 x 1/6 125 x 1/3 23 days 42 days break down these resident of the U.S. numbers in the and likely request following manner: a U.S. tax return. 2011 TOTAL: 186 days Don't get into a flap! There are always exceptions to the rules, even where the IRS is concerned. To avoid paying taxes in two countries, Canadians can file the Closer Connection Exception form or a treaty-based U.S. tax return. The option you choose depends on the number of days you've spent stateside in the taxation year. Have you been in the U.S. for less than 182 days in the taxation year? Have you been in the U.S. for more than 182 days in the taxation year? The Closer Connection Еxception Treaty-based U.S. tax return File Form 8840, the Closer Connection Exception Statement for File a U.S. treaty-based tax return. Using this option, Canadians only pay tax in the U.S. on certain source Aliens. This form allows Canadians to bypass U.S. residency designation by stating their residential ties to their home country. income, and any income earned outside the U.S. is excluded. JUNE 15 Both the Closer Connection Exception form and the treaty-based U.S. tax return are due on June 15 following the tax year in question. Consult a Collins Barrow U.S. tax expert before you file. Be proactive If you spend your winters down south, your best course of action is to file the Closer Connection Exception form or a treaty-based U.S. tax return annually. The IRS is more apt to apply a penalty on a requested return rather than one that was submitted voluntarily. While this infographic provides general planning parameters, Collins Barrow recommends that you seek professional advice before taking specific tax planning steps. Visit collinsbarrow.com for further information. 2012