Ask Me Help Desk - Standard deduction with 1040NR for H1b

Hi,

I am asking this on behalf of one of my close friends -
He came to USA from India Oct'2008 on H1-b visa .
And he has following understanding about his filing status -- Request you to confirm it or suggest correct way to do it.

1. he has to file 1040NR (as I am not completing 183 days test)

2. he can file as - "Married filing jointly"

3. he can get Exemption for both -he and his wife (she has no income) -- total $3500 * 2.

4. Can he get Standard Deduction (when he is on H1)?

Thanks

You (your close friend) has two choices
Choice 1: You did not complete SPT in 2008, you can file non-resident tax return. You can deduct Moving Expenses.

Choice 2: You can file resident tax return as Married Filing Jointly. You will have to wait for 5 months to file your tax return till you meet the Substantial Presence Test in 2009. Read Your U.S. Tax Return: Substantial Presence Test

You will get standard deduction of $10,900 and exemptions for both of you.

You must both declare your worldwide income for 2008. If you have any foreign income, and on that income you paid taxes in the foreign country, then you can claim foreign tax credit (Form 1116) or you can use Foreign Earned Income Exclusion (Form 2555). Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

You will complete forms W7 (application for ITIN) for your spouse and attach with your tax return. You can also deduct moving expenses. Use form 3903.
Read about H1-B tax filing: Your U.S. Tax Return: The U.S. Visas

Quote:

Originally Posted by MukatA

You (your close friend) has two choices
Choice 1: You did not complete SPT in 2008, you can file non-resident tax return. You can deduct Moving Expenses.

Choice 2: You can file resident tax return as Married Filing Jointly. You will have to wait for 5 months to file your tax return till you meet the Substantial Presence Test in 2009. Read Your U.S. Tax Return: Substantial Presence Test

You will get standard deduction of $10,900 and exemptions for both of you.

You must both declare your worldwide income for 2008. If you have any foreign income, and on that income you paid taxes in the foreign country, then you can claim foreign tax credit (Form 1116) or you can use Foreign Earned Income Exclusion (Form 2555). Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

You will complete forms W7 (application for ITIN) for your spouse and attach with your tax return. You can also deduct moving expenses. Use form 3903.
Read about H1-B tax filing: Your U.S. Tax Return: The U.S. Visas

Thanks more the detailed answer.

So, he can file after 5 months (i.e. in sep'09) without any penalties?
Fyi, He does not owe any tax (he has around $1200 tax overpaid).

If he selects the first option, filing as non-resident now, can he get exemption for his wife too? And can he attach form w-7 for his wife with his 1040nr form?

Appreciate your help.

Quote:

Originally Posted by MukatA

You (your close friend) has two choices
Choice 1: You did not complete SPT in 2008, you can file non-resident tax return. You can deduct Moving Expenses.

Choice 2: You can file resident tax return as Married Filing Jointly. You will have to wait for 5 months to file your tax return till you meet the Substantial Presence Test in 2009. Read Your U.S. Tax Return: Substantial Presence Test

You will get standard deduction of $10,900 and exemptions for both of you.

You must both declare your worldwide income for 2008. If you have any foreign income, and on that income you paid taxes in the foreign country, then you can claim foreign tax credit (Form 1116) or you can use Foreign Earned Income Exclusion (Form 2555). Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

You will complete forms W7 (application for ITIN) for your spouse and attach with your tax return. You can also deduct moving expenses. Use form 3903.
Read about H1-B tax filing: Your U.S. Tax Return: The U.S. Visas

He had filed for extension.
Now when he files the return, does he file as a Dual Status Alien for the year 2008? If yes, what forms are required to fill? Does he need to fill 1040 and 1040NR both (along with 1116) ?

If it is not a Dual status alien, can he only file form 1040?

Thanks,

If he files dual status, Form 1116 will NOT be required, because he will NOT pay taxes on foreign income (though he may have to report that income).

If he files jointly with his wife and they both CHOOSE to be treated as resident aliens for 2008, he will declare ALL world-wide income on that return. That will require the filing of Form 1116 to claim the Foreign Tax Credit.

The choise is his, but, more than likely, filing jointly is the best option tax-wise.

Quote:

Originally Posted by AtlantaTaxExpert

If he files dual status, Form 1116 will NOT be required, because he will NOT pay taxes on foreign income (though he may have to report that income).

If he files jointly with his wife and they both CHOOSE to be treated as resident aliens for 2008, he will declare ALL world-wide income on that return. That will require the filing of Form 1116 to claim the Foreign Tax Credit.

The choise is his, but, more than likely, filing jointly is the best option tax-wise.

Thank you very much.

So he will put all the foreign income (wages from the indian company) + US income in 1040 line 7 ?
Does he has to show any income proof for this foreign income along with 1040? As this income will not be there in W2.

Many thanks for your replies.

Yes, put the foreign income on Line #7.

NO proof is required with the initial return, though the IRS may ask for proof of this income later on, so try to have payslips to document the income claimed.