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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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Special request for John Gordos John, let me explain my ...

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Special request for John Gordos: John, let me explain my situation in more detail. (1) My famil and I (5 kids) are spending Jan 2009 to August 2009 at Lake Tahoe with a view to maybe spending 10 months a year there for say 6 years. I intend to buy a house there. If you spend more than 6 months a year in the UK, you pay UK tax because you are UK resident! (2) I won't exer have any US business activities or employment. The only visa I will get is a regular tourist visa that Brits can easily get; (3) I'm concerned that at some stage I'll be deemed to be resident and so start paying taxes. Any thoughts on what would make me resident, and so liable to filing US tax returns?
Submitted: 6 years ago.
Category: Tax
Expert:  jgordosea replied 6 years ago.

Greetings,

Indeed, recurring visits will at some point have you considered a United States resident for income tax purposes.

See Substantial Presence Test that says, in part:

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:

  1. 31 days during the current year, and
  2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
    • All the days you were present in the current year, and
    • 1/3 of the days you were present in the first year before the current year, and
    • 1/6 of the days you were present in the second year before the current year.

That is a substantially different result than just visiting the US as it does represent a change in residency.

There is an exception if you can show Conditions for a Closer Connection to a Foreign Country :

Even if you meet the substantial presence test, you can still be treated as a nonresident alien if you:

  • Are present in the United States for less than 183 days during the year
  • Maintain a tax home in a foreign country during the year (Refer to Chapter 28 of Publication 17 for a discussion of the tax home concept), and
  • Have a closer connection during the year to one foreign country in which you have a tax home than to the United States (unless you have a closer connection to two foreign countries, discussed next). For determining whether you have a closer connection to a foreign country, your tax home must also be in existence for the entire current year, and must be located in the same foreign country for which you are claiming to have a closer connection

In summary, you will be treated as a United States resident for income tax purposes if you repeatedly spend more than one half the year in the United States.

Even if you are a United States resident that is subject to income tax on worldwide income, there may or may not be any total increased tax burden due to Foreign Tax Credit claimed on Form 1116 . In simple terms you will be allowed a credit for your taxes paid to the United Kingdom on your United States income tax return up to the amount of tax that you paid; but only at the tax rate applicable to US tax. In other words, if your income tax bracket in the United States is lower than your rate in the United Kingdom, you should not incur additional US tax; but if your rate in the US is higher you will pay US tax to the extent the US rate is higher than the UK rate. There will be the increased filing requirement and reporting burden.

You are wise to be concerned and planning for the tax implications. It would likely serve you to have a consultation with a tax practitioner experienced with UK citizens resident in the United States to apply the rule to your specific situation. You should also examine the provisions of the United Kingdom (UK) - Tax Treaty Documents as some types of income are only taxed in the country of residence.

I hope this helps for general information on when one is considered a resident for US income tax purposes.

Best wishes.

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3011
Experience: I've prepared all types of taxes since 1987.
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