DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

Posts Tagged ‘Form 1040-NR’

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US Residency for Canadians

In US Income Tax on April 24, 2011 at 12:34 pm

Oops! Are you Canadian spending too much time in the United States? Then you may be considered a U.S. resident according to the IRS. The U.S. has certain rules which may deem you to be a resident there for income tax purposes based on the number of days you were present in that country.

Just like the sojourner rule in Canada, if you were present in the U.S. for 183 days or more in a calendar year, you are considered a resident for the full year, and may be subject to tax on your world income.

If you are a Canadian resident as well according to Canadian rules, then you must look to the Canada-U.S. tax Treaty’s “tiebreaker rules” to see which country has the right to tax you. But even if the Treaty determines you are a Canadian resident, you must still file a U.S. non-resident income tax return (Form 1040-NR) and claim treaty protection (Form 8833).

Apart from the 183-day rule, there is a second rule known as the “substantial presence test” that could categorize you as a U.S. resident. This test is also based on the number of days you spend in the U.S. You pass this test (or maybe fail is a better word) if you were physically present in the U.S. for 31 days or more in the year, and if the total number of days in the U.S. is 183 or more, using the following formula:

  • Total number of days spent in the year, plus
  • 1/3 the number of days spent in the previous year, plus
  • 1/6 the number of days spent in the second previous year.

As a result of this formula, it is possible that you may be considered to be a resident of the US in a particular year even if you were present in the US for less than 183 days in a single year.

If you meet the above substantial presence test, but were not present in the U.S. for 183 days in a single year, you could be considered a non-resident if you claim the “closer connection” exemption. This would enable you to avoid filing a tax return, but you would still be required to file form 8840 to claim the exemption. This form must be filed by June 15 of the following year.

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Rolling the Dice With the IRS

In Gambling Winnings, US Income Tax on March 26, 2010 at 2:47 pm

Contrary to popular belief, only thirty percent of what happens in Vegas, stays in Vegas.

Now we come to one of my favourite topics: Gambling. Like most people, I love gambling, except for the times when I hate it. It’s a complicated relationship.

One thing that’s never happened to me is winning big money in the United States (or anywhere for that matter). Here in Canada gambling winnings are generally tax-free. End of story. Not so simple down south.

Me and poker pro Gavin Smith at a Montreal charity tournament

Many Canadian winners at the casinos in Las Vegas or New Jersey are shocked to discover that the IRS gets a cut of their take. In fact, a 30% withholding tax applies to most gambling winnings by non-resident aliens. There are a few exceptions – no tax applies to winnings from blackjack, baccarat, craps, roulette, or big-6 wheel.

The next obvious question is, can a Canadian winner get back any of this U.S. tax withheld? Maybe. But you’ve got to be a bit of a loser and a great record-keeper to do so. (This doesn’t mean you’re a loser if you keep good records, just a bit anal. :-) )

Canadians can deduct their gambling losses from their gambling winnings for the year to reduce the amount of U.S. tax payable. The deduction allowed is only for losses incurred in the same year as the winnings. In other words, you cannot claim accumulated losses from previous years.

In order to make the claim you must file a non-resident personal income tax return (Form 1040-NR), report your gambling winnings (excluding the activities where no tax applies), and deduct your losses as an itemized deduction. Unless you’re a pro, your net gambling winnings will be subject to the flat 30% tax rate.

You must be able to substantiate your losses for the year. Therefore, you should always keep your receipts, tickets, statements or other records that will prove how much you’ve lost during the year.

Good luck!!