Taxes Work Personal Life Issues

In our last post we talked a little about tax issues for snow birds from Canada. These are people who spend a lot of time in the US to get away from the Canadian cold winters. Typically they will leave in Nov and return in April spending as much as 180 days in the US enjoying the southern climate and warm temperatures that the US has to offer. The term snow birds also includes people who spend as little as one month in the US as well, so it is really anyone who heads south for some part of the winter.

The IRS has developed definitions and tests for assessing people in terms of residency and whether they would qualify to pay taxes or not. Although it appears most Canadian snow birds would not fall under these definitions, it is a good idea to become aware of these tests and make sure that you have taken the steps necessary to not qualify as a resident alien in the United States. The think that many Canadians fail to think about is that once you are in the United states or any other country for that matter, you fall under their laws and it really does not matter whether you are Canadian or not.

The following outlines the substantial presence test that the IRS applies:

• If you were in the United States for 183 days or more in the current year, you meet the substantial presence test and are considered a resident alien of the United States.
• If you were in the United States for between 31 and 182 days in the current year, you may meet the substantial presence test.
• If you were in the United States for less than 31 days in the current year, you don’t meet the substantial presence test, and are considered a non-resident alien of the United States.

Demonstrating that you are not a resident alien can be accomplished in a number of ways providing that you are prepared. Here are a few that seem to qualify:

• Your tax home is in Canada. If you are not employed or self-employed, your tax home is where you regularly live, as shown by owning or renting a house, condo, apartment, or furnished room. Your Canadian home must be available to you continuously throughout the year at all times, and not just for the period that you are not in the United States.
• If you are employed or self-employed, your tax home is the location of your principal place of business or employment, regardless of where you maintain your family home.
• You had a closer connection to Canada than to the United States during the current year. Various factors demonstrate that you maintain more significant ties to Canada than the United States. These factors include the location of the following:
• your permanent residence
• your family
• your personal belongings, such as cars, furniture, clothing, and jewelry
• your bank
• where you carry on business (if applicable)
• social, cultural, religious, or political organizations to which you belong or in which you participate
• the jurisdiction where you vote
• the jurisdiction where you hold a driver’s license.

If you are concerned about this issue or are being assessed as a resident alien, it is time to seek out experts who can assess the details of your situation and outline what you need to do. This post is just a rough guideline and should be considered an outline of the issue facing snow birds who are dealing with US tax issues.

Comments are welcome.

Most of us really do not give it much thought when we head off on vacation to the United States. We may have been going to the states for many years on the standard two week vacation to Florida, Texas, Arizona or California and really not been concerned about any tax issues at all. The answer is that you have been right unless you purchased a property in the United States which will complicate matters significantly.

Now that you are older and retired, many people are extending their vacation in the warm south to anywhere from on month to as much as 6 months at a time to escape the cold winters. If you are staying that long, it begins to make sense to won a small condo or sometimes a trailer to live in instead of renting a place every time you head south. We fall into the category were we are just on the edge of it making sense to rent vs/ own. We head south every year for two to three months at a time with a number of other small two or three week vacations to various locations in the US.

Our personal philosophy, tax issues for snow birds aside, is that we do not want to be tied to one location. If I own a place somewhere as a vacation home, then I would want to spend a lot of time there to make use of my investment. Having it sit empty all of the time is not really what it is all about. My wife would not want to rent it out to anyone so I cannot really consider it to be an investment either. It really is a vacation home. As a result we decided not to purchase a place in the US preferring the freedom to be able to go to a variety of places while we travel the US and not need to support two places.

This removes one  area of tax issue for us as snow birds since we do not own a property in the states and will not need to be concerned about capital gains etc. The other major area is income tax. This is something that all snow birds should look into. If you plan to be in the United States for an extended period up to 180 days a year then you could become subject to income tax on all of your income and have to pay tax to the IRS. You need to be able to demonstrate that your home is in Canada and that you have not severed ties to Canada. How do you do that, well you should talk to an expert, but here is a short list of things to make sure that you do not give up:

• Own or rent a home in Canada that is available to you upon your return
• Pay taxes on this home
• Have Canadian bank accounts
• Pay federal and provincial income tax
• Can show that this home in Canada is your permanent home
• Have a provincial drivers license
• Have a provincial health card

While this may seem trivial, snowbirds traveling to the US should have evidence of these things with them or be able to get them to show US customs officials. There is a lot more detail to dig into , however the main issue is to be able to show that you are a non resident alien and do not fall under the IRS tax rules. If you are labeled a resident alien you could be forced to pay tax in the US to the IRS, which makes life a lot more complex.

If you plan to purchase a property in the US and / or spend a significant amount of time in the US it is definitely worth taking the time to understand these issues in more detail and complete your tax planning properly.

A little while ago, we wrote a post about Snow Birds Renting Condos. This was a general post about retired people heading south for the winter and perhaps renting a condo for a couple of months during the winter. We covered a lot of things that you may want to look out for if you want to ensure that you do not ripped off or experience disappointment.

Some people will head south for the winter or perhaps have a work situation that requires them to live in a city for an extended period of time, until a project is completed. They may want to rent a furnished apartment or condo for this period instead of living out of a hotel room which is much more confining and limiting. This is a great way to see a city by the way and experience living in even another culture without having to invest a lot of money buying furniture or even buying a home, condo or whatever.

We have never rented on a long term basis for personal reasons. We have traveled on business and live in a condo that was furnished for a period of 8 months. The condo came with 2 bedrooms, and all of the standard furniture and utensils that one would need to live comfortably.

We found that negotiation is everything when it comes to service as well as prices that we were paying and that it is never too late to renegotiate the price you are paying for the condo, as long as you have a relatively open contract which we did. this same approach applies to snowbirds as well who are heading south for the winter for a period of 6 months, although once you agree for a specific price etc, it can be difficult to renegotiate unless you are not receiving the services or conditions that you agreed to in the contract.

The key to any contract is to negotiate everything up front and make sure you have everything you want before you sign on the dotted line. Once you sign the owner is going to be unwilling in most cases to open the contract unless it is too his advantage.

Read our other post about Snow Birds Renting Condos for some of the things to watch out for when you book your place. Note that since you are staying longer there is a much better chance that you will be able to negotiate a much lower price than you would for a shorter term contract as well. Sometimes you can save as much as 50% between a one month contract rental price and one that is for a period of 6 months. It really depends on what the demand is and your negotiation skills.
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Many people are becoming snow birds these days, ourselves included, so we thought we would write about some of our experiences and also ask readers to let us know about theirs so that we can all improve our chances of enjoying our time away from the cold Canadian and Northern US winters.

Here are some of the major issues  that all snowbirds need to consider whether you are going away for a month or longer. Each situation will be different so we will keep this general so you can apply it to your personal situation. We will expand the list in more detail later in this post, however if we missed something, please leave us a comment and will be happy to add it at anytime. Here is our list for Snowbirds:

• Home Maintenance While You are Away
• Health Insurance ( Especially for Canadians)
• Condo Rentals / Hotel Contracts
• Car Contracts
• Communications
• Meeting other Snow Birds
• Friends and Visitors While You are Away
• Staying in Touch With Family
• Emergency Situations

Home Maintenance While You are Away

Always make sure that there is someone looking after your home or apartment while you are away.  Basic things such as security, picking up the mail and making sure the home is heated. Your insurance company may have specific things that you need to do to maintain your insurance. Check with them before you embark on your snow bird trip for the winter. Whoever is looking after your home needs to be able to get in touch with you and also deal with any emergencies that may come up.

Health Insurance ( Especially for Canadians)

We all need health insurance, however it is a big issue for Canadians, since our health insurance does not begin to pay the costs involved when using foreign medical treatment. Investigate the coverage you need to have for your family while you are away and never travel without it.

Condo Rentals / Hotel Contracts

It is better to have a contract than none at all, however these things really do not protect you while in a foreign country. What are you going to do, sue them. It gets way too expensive, so you are better to dot the i’s and cross the t’s before you go. Rely on word of mouth and recommendations. Remember that pictures can be doctored and they are often taken when the property was pristine and do not reflect the way it is today. Many snowbirds have been ripped off in this manner or had to deal with inferior conditions.

Car Contracts

Always set up your car contract before you arrive, so that you know there is a car waiting for you and you know the price. If you have to negotiate a contract in a foreign country you are clearly at a disadvantage.

Many snow birds will travel in their own cards. Always make sure you have sufficient insurance coverage for the country you are going to. Many will not insure your car for Mexico for example without a special rider being added.

It goes with out saying, have your car fully maintained, good tires and anything that needs replacement before you go. A breakdown while on the road can be expensive.

Communications

Whether it is prepaid cell phone, your computer with Skype loaded or your current phone, always make sure you have sufficient communications to cover emergencies and also so that someone can get in touch with you withing a 24 hour period. A cell phone  is also handy to have for making arrangements, since many hotels and condos either charge an arm and a leg for the use of a phone or they simply do not provide service.

Meeting other Snow Birds

Be outgoing and ready to meet people along the way, however always be cautious too to avoid getting into situations that are not comfortable. You can have a lot of fun with new found friends.

Friends and Visitors While You are Away

Many people will want to visit for free, especially if you let them know you have the room. Advertise this fact carefully and to those people that you want to visit, especially if you have a hard time saying no. We found that the rule of a 5 pm happy hour is a great idea. The rest of the day everyone is on their own, but meeting at 5pm to visit and compare notes is a great way to set plans for the evening without feeling that you have to entertain someone all of the time.

Staying in Touch With Family

Stay in touch with the family especially the kids and grand kids. Use Skype video or some other similar product to talk to people for free and see them over the video service provided. Remember a computer to computer call over Skype is a free call.

Emergency Situations

This is the toughest thing to deal with. Obviously you cannot anticipate all situations, however you can ease the situation somewhat. Make sure that your spouse and your family members (those that you trust) have your itinerary, know how to get in touch, have access to your medical insurance, home insurance and car insurance policies. One call should be enough for someone to get into action to help you deal with whatever emergency comes up.

We have only covered the major things that a snowbird traveler should consider. Take these and work out the details for your situation, and family to ensure that your long term vacation is a successful one.