I am medical resident on H1B visa. I am from Serbia. Should I file 1040 or 1040nr for tax return. Also my wife is on H4 visa should I claim her as an dependent or what?

Thanks

When did you enter the U.S.? Read about H1-B tax filing: Your U.S. Tax Return: The U.S. Visas (http://taxipay.blogspot.com/2008/08/us-visas.html)

When did you enter the U.S.? Read about H1-B tax filing: Your U.S. Tax Return: The U.S. Visas (http://taxipay.blogspot.com/2008/08/us-visas.html)

I came in June 2007 so I file a tax for last year through some tax firm with 1040. but now I realize that some of my colleague from India and Pakistan file a 1040nr form. I know that some countries have a tax treaty with US I think Serbia don't have.

On H1-B visa, there is no tax treaty exemption for any country. In 2008 you must file resident tax return. You can file joint return as residents. You will get standard deduction of $10,900 and exemptions for both of you.
Read about H1-B tax filing: Your U.S. Tax Return: The U.S. Visas (http://taxipay.blogspot.com/2008/08/us-visas.html)

For 2007, you HAD the option of filing jointly with your wife as resident aliens, but you would have had to report your Serbia income as well on the 2007 tax return.

For 2008, you will definitely file as a resident alien, probably jointly with your wife.

By filing jointly with your wife you get a double standard deduction and two exemptions.