Hi,
I am an H1B - resident alien. (Nationality-Indian)
I got married and my wife moved with me to US.

We have to file both Federal and California tax.
My wife is not working (earned no income in US or India).

Following are my questions:

1. What should be our filing status to get maximum return ?
Married filing separately or jointly or any other

2. Should I need to get ITIN for my Wife ? If so how can I get it ?

3. Can we apply for ITIN now itself ? So that by the time I file my return (next year) it will be ready.

4. What are the additional tax exemptions/deductions that I can claim with my wife as my dependent..

Thanks

It is probably most advantageous for you to file jointly with your wife, filing Form 1040 with Form 1116 to claim the Foreign Tax Credit. Form 1116 is required because you must claim ALL world-wide income earned in 2015, and the Form 1116 allows you to claim a credit for the income taxes paid to your home country.

You will need to apply for an Individual Tax Identification Number (ITIN) for your wife by submitting Form W-7, and that process underwent some radical procedural changes in 2012. Instead of the simple notarization process, the IRS now requires that your home country certify the photocopy of your passport as a true copy. This is due to rampant fraud in the ITIN submission process. The notaries simply cannot tell the difference between a fake passport and the genuine passport.

FIRST ALTERNATIVE:

For Indian clients, this certification can be done by the Indian embassy in Washington, D.C. or at one of the consulates in San Francisco, Chicago, Houston or New York. Assuming you do NOT want to drive there, you need to call the nearest consulate and arrange to have this process done via the mail. You have time to get this done (the process, done via mail, can take up to three months to complete). My clients to date have had the best results by mail with the San Francisco consulate, getting the certified passport photocopies in less than 3 weeks.

SECOND ALTERNATIVE:

The IRS also have Tax Assistance Centers through which you may be able to have the passport verified as genuine, then submit the tax return and Form W-7 IN PERSON to be forwarded to the ITIN Processing Center in Austin, Texas for processing , without having to get the photocopies certified by your home country consulate.

You go to the TAC with your wife, her passport, the SIGNED Forms W-7, and the completed and SIGNED tax return.

The IRS official verifies the passports, asks a few questions, completes the certification paperwork, checks the Forms W-7 and tax return, then returns the passports with a receipt for the tax return and Forms W-7, which is sent to Austin, Texas for processing.

You leave the TAC with your wife, the passport and a receipt for the Forms W-7 and the tax return.

You would get the ITIN about six weeks after you left the TAC.

The tax returns are NOT processed at Austin, Texas, but rather forwarded to the regional IRS centers for processing, so the refund will come about one month AFTER you get the ITIN letters.

The list of the TACs are at the link below:

Taxpayer Assistance Center Locations Where In-Person Document Verification is Provided (http://www.irs.gov/uac/TAC-Locations-Where-In-Person-Document-Verification-is-Provided)

The FINAL alternative is to mail in the actual passports themselves, something most of my clients are reluctant to do, because, if the IRS gets the passport, they hold it for about TWO months.

After you get the ITIN, you can then efile the state tax returns.

Thanks a lot for the detailed reply. I really appreciate that.
I have couple of clarifying questions. Would appreciate your suggestion..

1. Regarding Form 1116: If we both don't have any other foreign income and did not pay tax in other countries I hope we don't have to still file form 1116.

2. Regarding visiting TAC: So I have to visit TAC only after preparing my 2015 tax returns right. I can't visit now and get Form W-7 approval

3. State tax: You have mentioned this "After you get the ITIN, you can then efile the state tax returns". Does it mean I have wait those 6 weeks for her ITIN without filing State tax ? Should I file any extension or something for this wait ?


It is probably most advantageous for you to file jointly with your wife, filing Form 1040 with Form 1116 to claim the Foreign Tax Credit. Form 1116 is required because you must claim ALL world-wide income earned in 2015, and the Form 1116 allows you to claim a credit for the income taxes paid to your home country.

You will need to apply for an Individual Tax Identification Number (ITIN) for your wife by submitting Form W-7, and that process underwent some radical procedural changes in 2012. Instead of the simple notarization process, the IRS now requires that your home country certify the photocopy of your passport as a true copy. This is due to rampant fraud in the ITIN submission process. The notaries simply cannot tell the difference between a fake passport and the genuine passport.

FIRST ALTERNATIVE:

For Indian clients, this certification can be done by the Indian embassy in Washington, D.C. or at one of the consulates in San Francisco, Chicago, Houston or New York. Assuming you do NOT want to drive there, you need to call the nearest consulate and arrange to have this process done via the mail. You have time to get this done (the process, done via mail, can take up to three months to complete). My clients to date have had the best results by mail with the San Francisco consulate, getting the certified passport photocopies in less than 3 weeks.

SECOND ALTERNATIVE:

The IRS also have Tax Assistance Centers through which you may be able to have the passport verified as genuine, then submit the tax return and Form W-7 IN PERSON to be forwarded to the ITIN Processing Center in Austin, Texas for processing , without having to get the photocopies certified by your home country consulate.

You go to the TAC with your wife, her passport, the SIGNED Forms W-7, and the completed and SIGNED tax return.

The IRS official verifies the passports, asks a few questions, completes the certification paperwork, checks the Forms W-7 and tax return, then returns the passports with a receipt for the tax return and Forms W-7, which is sent to Austin, Texas for processing.

You leave the TAC with your wife, the passport and a receipt for the Forms W-7 and the tax return.

You would get the ITIN about six weeks after you left the TAC.

The tax returns are NOT processed at Austin, Texas, but rather forwarded to the regional IRS centers for processing, so the refund will come about one month AFTER you get the ITIN letters.

The list of the TACs are at the link below:

Taxpayer Assistance Center Locations Where In-Person Document Verification is Provided (http://www.irs.gov/uac/TAC-Locations-Where-In-Person-Document-Verification-is-Provided)

The FINAL alternative is to mail in the actual passports themselves, something most of my clients are reluctant to do, because, if the IRS gets the passport, they hold it for about TWO months.

After you get the ITIN, you can then efile the state tax returns.

1) If neither you nor your spouse has foreign income, then the Form 1116 isa NOT needed.

2) Yes, you MUST submit the Form W-7 at the TAC WITH the 2015 tax return. Any ITIN application (Form W-7) submitted without a tax return WILL be rejected by the IRS.

3) You WILl have to wait for the ITIN, but if you apply in January, you should get it by the end of February, which is more than enough time to get the ITIN and submit the state tax return before the 15 April 2016 filing deadline.

Thanks for answering.

One more question.

Just in case, if ITIN processing gets delayed is there any way I can file extension for CA State tax ?
What is the process in that case.
Because completing my Tax return by January also is little hard.

You CAN file an extension with California, but most states will not care if you file late if you have a refund due.