Hi David,

I thought I'd post in this topic because I have a case similar to that of Balajinaik. However the website doesn't let me continue in his post, so I have to start a new Thread.

I have been on an H1B visa thru 2006 and will be filing as a resident alien.
I got married in India in Dec 2006.My wife has yet to enter the US and intends to do so
only in December 07 (on an h4).

q1) I would like to know if I am allowed to file as Married (Jointly or separately)?

q2) From previous posts I have a fair a idea that I will have to apply for an ITIN (via W-7)
while filing my tax return. However the W7 (6d) ask for "Entry date in US"; which she obviously does not have. Can it be left blank ?

q3) She has income for 2006 earned in India. Will I have to add it in my return (if we are filing jointly)?

q4) Is there any benefit or downside to filing "married filing separately" for my case ?

Thank you for your time.

Regards,
Vik

AtlantaTaxExpert

Vik:

1) Yes, you can file jointly with your wife. For filing jointly, the physical location of yout spouse is irrelevent.

2) Yes, it can be left blank.

3) Yes. Her income IS subject to U.S. taxes if she files jointly with you.

4) Depends on how much money she made in India. There is no longer a "marriage penalty" in the income tax return, so filing separately only results in losing her exemption and her half of the $10,300 standard deduction.

IntlTax

ATE,

I have heard that if you get an ITIN for a nonresident alien spouse and the spouse has no U.S. source income, that you can file married filing separate and still claim the personal exemption for your spouse. I was curious if you had heard of this?

AtlantaTaxExpert

If you are a resident alien, then you MUST file jointly to claim your wife's exemption.

Some non-resident aliens can claim their spouses as dependents, but it depends on their national origin. Those from Canada and Mexico can, as well as certain teachers, students and researchers from India. There are other exceptions as well.

IntlTax

According to IRS publication 17 (page 25): "If you file a separate return, you can claim the exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. This is true even if the other taxpayer does not actually claim your spouse as a dependent. This is also true if your spouse is a nonresident alien."

Not only this, but section 872(a) provides that gross income of a nonresident alien only includes U.S. source income and income effectively connected with a U.S. trade or business. Thus, as long as the nonresident alien spouse has no income from the U.S. the U.S. citizen/resident should be able to claim the spouses exemption on a married filing separate tax return (as long as the spouse has an ITIN).

AtlantaTaxExpert

Okay, I will concede the point that Vik can file a Married Filing Separately return and claim his wife's exemption in order to get his wife's personal exemption without having to claim her foreign-based income. Learn something new every day.

However, by taking that action, Vik forfeits his wife's share of the Standard Deduction, which is a $5,150 deduction. It also makes him liable for a generally higher tax rate on his income (though this is true only in the higher tax rates) and ineligible for the Earned Income Credit, the education credits/deduction and the Child care credit (most of the time).

If Vik's wife paid taxes on her foreign-based income, he can file jointly and claim the Foreign Tax Credit for those taxes. I suspect that Vik will do better by filing jointly and claiming this credit.

IntlTax

I agree. Filing jointly may be better.

mark4jon

Thanks guys. I didn't know about the foreign tax credit. I'm looking into it now, So I'll be better informed .

VIk

AtlantaTaxExpert

Glad to help!