Benjamin Franklin famously said that the only things we can be certain of in the world are death and taxes. We like to think that there is a third certainty – great exchange rates from Continental. Unfortunately we can’t make taxes go away, but we can give you some helpful tips to keep more currency in your pocket.
10) Know the Rules
Taxes aren’t exactly the most exciting subject, but knowing the basics could save you a whole lot of money.
Many snowbirds are aware of the so-called ‘183-day rule’ whereby if you spend more than 183 days in the states you may be taxed by the IRS. What many snowbirds don’t know is how these 183 days are calculated. Every day you spend in the states in a given year counts – as you would expect – as one day. But, in addition to this, every day you spent in the states the previous year also counts as ⅓ of a day, and every day you spent in the states a year before that counts as ⅙ of a day. So, because of this you actually can’t live 183 days a year in the states every year. If you plan on returning every winter then you can only spend 120 days per year for three consecutive years.
|Year||Full Days Spent||IRS Calculation||Counts for|
|Current Year (2015)||120||1 to 1||120 days|
|Last Year (2014)||120||⅓||40 days|
|2 years ago (2013)||120||1/6||20 days|
|Total (2015)||–||–||180 Days|
As this chart illustrates, the maximum amount of time you can spend per year in three consecutive years is 120 days.
9) Get Close to Canada
If you do hit 183 days in the states per year you might still be able to get out of forking over your cash to the IRS. You have to prove that, despite spending a substantial amount of time in the US, you maintain a closer connection to Canada. Many snowbirds are already familiar with IRS form 8840 otherwise known as snowbird filing. If you can demonstrate some or all of the following remain in Canada then you may be exempt from paying taxes:
- Your permanent residence
- Drivers licence and other documentation
- Cars, clothing or jewelry and other personal belongings
- Any businesses or business activities
- Voter registration
8) Renting property
One of the most common reasons Canadian snowbirds have to pay the IRS is through property taxes. If you are travelling to the states frequently chances are you own a home, and if you are only living there 4 months a year, you might be tempted to rent it out. This can be a big money saving option, and might even serve as a nice piece of income. Be warned, however, if you earn rental income on property south of the border you will be subject to taxes on both sides of the 49th.
7) Selling Property
Many Canadian Snowbirds are selling their US property due to the low Canadian dollar. By selling their assets down south and exchanging the US dollars for Canadian dollars many snowbirds are earning a big payday thanks to the exchange rate. Unfortunately, if you bought your property at the wrong time and are feeling forced to sell you might incur a loss, which would make the sale tax exempt thanks to IRS form 8288-B. If you do make a profit be prepared to pay US taxes.
6) Keep Everything on File
Keep all your information handy. This includes:
- Mortgage or lease agreements
- Copy of all IRS forms
- Canadian tax returns
- Detailed travel itineraries with receipts for proof in Canada and the US
- Canadian utilities statements
5) Check your Official arrival and Departure dates
The US department of Homeland Security keeps records of everyone that enters the US. Request your I-94 from the US Department of Homeland Security to prove when you entered and left the US.
4) Know your Canadian Requirements
While you may be able to spend 180 days or more in the US, this doesn’t mean that everything will be just as you left it in Canada. Every province enforces different rules regarding your residency status and this may affect your health care. Check with your province to ensure that you don’t lose healthcare. If you lose residency then you may be subject to additional taxes from the CRA. For example, Ontario allows seven months absence, Newfoundland allows 8.
3) Don’t be an Alien
Spending more than 6 months consecutively in the states without the appropriate Visa could end up with you being labelled an illegal alien. Being designated an illegal alien could jeopardise all your US assets, and even result in being barred from the country for 3-10 years.
2) Know your state
Another property tip, when buying property be aware that some states, like Florida, charge a higher property tax rate for non-residents than for locals. If you have property even further south, like Mexico or the Caribbean, the single best piece of advice is to hire a reputable local lawyer.
1) Update your power of attorney and will
While not only a tax tip, it is always important to keep your power of attorney and will up to date. If something were to happen to you on either side of the border your assets could incur serious tax headaches for your loved ones. Add to this the complexities of cross border inheritance and it is even more important to keep up to date with your will and power of attorney.
Stay informed. Stay Current.