My wife lives in a South American country and has an 8-yr old dependent son living with her. Both having their petitions approved already, they should be arriving at the earliest to live with me in the United States in 1Q-3Q 2009, but not before 2009. She has a very small income <$5500 per year over there from her very small personal business with only some general tax records.

I am pretty sure now that I need to get her an ITIN.

What I want to know is:
-How can I best handle her and my new stepson on my 2008 taxes to save our new family money?

(I am confused about a lot.. . Non-resident filing versus resident, joint vs separate, claiming dependents, qualifying as head of household, if stepson needs ITIN, etc... )

Thank You so much

You can file jointly with your wife; her visa status and physical location are irrelevent when it comes to filing jointly.

Her home country-based income WILL be subject to U.S. income taxes (but NOT self-employment taxes due to her non-resident alien status), but the added benefit of her $3,500 personal exemption and her $3,450 standard deduction more than offsets her added income, so you come out way ahead by filing jointly.

Unfortunately, to claim your son as a dependent, he MUST be physically located within the United States for at least part of 2008. Since that will probably NOT happen, you will not be able to claim him on your 2008 tax return.

Contact me at the email address below if you have further questions or if you need professional tax help.