I came to US on L1 VISA on July 10 2009 along with my wife and kid. It is becoming 175 days by Dec 31 2009. With this my case is failing the substantial presence test. And went into non-resident alien. It is shy of 8 days to 183 days. Can I choose the first year choice and file the tax returns. This will make me qualify for standard deduction and child care benefit. Please suggest.

Yes, you can choose to file joint return as residents. Wait to file return till you complete SPT in 2010. For this you will count 1/3 of days in 2009. Your U.S. Tax Return: Substantial Presence Test

Thank you very much.

Under first year choice, can I claim the tax exemptions for the kids.

Yes, you will attach W-7 for your spouse and kids with your tax return. You will get Making Work Pay credit (schedule M (Form 1040)) and child tax credit. Also attach h a statement signed by both of you to your return stating that you qualify to file as residents as First Year Choice and that you CHOOSE to file this way.
You must both declare your worldwide income for 2009. 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

To pass the SPT in 2010 I need to wait up to May9th 2010. But, we need to file the returns by April 16th. Is there any way for me to file an extension. Is there any complications/rules in filing extension. What kind of reason I need to show to get an extension. And when I need to file for extension.

You should not file before May 9, 2010. Apply for extension in your name. Make sure to pay any tax due before April 15, 2010.