Hi,

I was in OPT (Student from India) from June 2004-June 2005. My visa status changed to H-1 starting fom July 1st. While on OPT, I worked as Independent contractor and I got 1099 for $10000. I have 2 W2's from July through Dec.I pass the substantial presence test. I have to file as dual-status alien. Now I assume these are the forms that I have to file.

1040
1040 NR
SCHEDULE C for the 1099

Now my question is:

Do I have to put the $10000(thru 1099) in the 1040 NR and schedule C. Claim a standard deduction on this. Can I itemize the deductions?

If I claim the standard deduction, then $5000 is the taxable income. Is this the amount that I have to include in 1040.Say My income on H1B is $25000. Then I have to show that $30000 is my total income on 1040. Then claim a standard deduction.

Can I get personal exemptions on both 1040 NR and 1040.

I cannot claim itemized deduction on 1040NR and claim standard deduction on 1040. Is this statement right.

Please throw some light on these questions.

Jags:

Since you pass the Substantial Presence Test, you do NOT have to file as dual status (if that was an option to begin with; please read the STICKY NOTE).

You must file as a resident alien, filing Form 1040 only with Schedule C and Schedule SE. Since you are filing as a resident alien, you will be able to claim the $5,000 standard deduction and $3,200 personal exemption.

You will be able to claim a variety of expenses on the Schedule C to offset some of that $10,000 in self-employment income.

Do not forget the four big deductions for Schedule C:

- Car and Truck expenses (which includes mileage while working your work projects) (Line #9).
- Costs of your computer, monitor, printer and modem (which needs to be depreciated on Line #13); this assumes you are using your computer/laptop for your work.
- Cost of your Internet Service Provider (this assumes you need Internet access for yor contract work; do not go overboard and claim it all, but you can at least a 25% of your ISP bill while on 1099 status).
- Business use of the home (you'll need a separate Form 8829) for those computations.

Thanks for your prompt reply.

I just ot one more question.

You have said that I have to file SCHEDULE SE. Why do I have to do that. I thought Im exempted from Self employment tax(Socia security and Medicare) as I was on OPT for which I got 1099.

Please explain this.

Your liability to self-employment taxes is driven by the fact that you will file as a resident alien, not whether you are on OPT or not.

Since you must file as a resident alien, you are technically liable for the self-employment tax, even though you earned the income while on F-1 status, when (theoretically) you are exempt from these taxes. This, however, violates the spirit of the law that exempts international students from self-employment taxes.

That was the advantage of filing dual-status when I initially gave that as a filing option. Unfortunately, that option does not apply any longer.

Recommend you try to file just the Schedule C and attach a cover letter stating that, as an international student, you were exempt from self-employment taxes during your OPT period. Attach a letter from your employer on company letterhead verifying the dates of employment (during the 1099 period), combined with a photocopy of the F-1 visa. With this documentary evidence of when you worked on 1099 and your F-1 visa status, the IRS may waive the self-employment. Of course, they may not as well. However, you lose nothing by trying.

Thanks.What would be the safest expense(In amount) that I can show for the 1099 MISC Income. I don't have any receipts or documents that I can support.

Jags:

That depends on the nature of the work. If you traveled from client to client, your mileage costs will be significant.

Recommend you e-mail me at [email protected] so we can discuss this in more detail.