Hi,

I was in US on B1 visa for 5 months (2011). Then I went back and came here on H1 in Nov (2011). As per the SPT conditions, I do pass SPT for the year of 2011. I am married and my wife is India. She would be joining me only in 2012.

I am planning to file my returns as married filing separately.

1. Since I am on a dual status for year 2011, do I need to file both resident and non-resident forms ?

2. If I do pass SPT, and filing as a resident, what happens to my income from India ?

3. If I do pass SPT, do I have an option of filing as non-resident only ? My India income is considerable and I have paid Indian tax on it.

4. If I file as non-resident, married filing separately, Do my wife needs to file a return ? She is in India and she is earning there. I may not be interested in married filing jointly as wife also has considerable income in India for 2011.

Please help. I am very confused.

If you file separately, and because you have met the SPT, you MUST file a dual-status return, filing BOTH Forms 1040 and 1040NR; the tax is computed on the Form 1040. On a dual-status return, ONLY U.S.-sourced income is reported, but you cannot claim the standard deduction (you MUST itemize), nor can you claim your wife as a dependent.

Note that the dual-status return is NOT for amateurs; get professional help from someone with experience filing dual-status returns.

However, you can (and possibly SHOULD) filing jointly with your wife and you both CHOOSE to be treated as resident aliens for all of 2011. A combination of the Foreign Tax Credit (for you and your wife) (Form 1116) and the Foreign Earned Income Exclusion (for your wife) (Form 2555) may offset any added tax on your world-wide income.

At a minimum, the tax professional should model the return BOTH ways to determine which is the best course of action. I do this as a matter of routine when I prepare my clients' tax returns.

If you want my professional help, email me at [email protected]. This IS what I do!

Thank you very much for the precise answer.

If I file as Dual Status, my US sourced income will be taken account. Having said that, since I am here for just 2 months Nov & Dec on a payroll (No payroll on B1), my total income would be less than $10k for the whole financial year 2011. In that case, I would be paying very little taxes. For the next financial year, I would file as married filing jointly. Do you think it makes sense ?

Thank you again.

Yes, that makes sense.

Thanks again. Just one more doubt.

In my case, If I file as a dual status and married filing separately for 2011, do my wife still needs to file an return ? She is in India and would be joining me only in 2012.

Just a question for clarification for ATE:
The residency starting date would be the first date he was in the US on B1, no? Than all worldwide income from that date onwards should be reported on the resident return even the income from the time he returned to India.

For OptMyTaxes:

If you file dual-status, your wife has NO requirement to file a U.S. tax return.

For TaxesForAliens:

Unfortunately, you ARE correct about that. My original post did not make that clear. Below is an extract from IRS Pub 519 on that issue:

For the part of the year you are a resident alien, you are taxed on income from all sources. Income from sources outside the United States is taxable if you receive it while you are a resident alien. The income is taxable even if you earned it while you were a nonresident alien or if you became a nonresident alien after receiving it and before the end of the year.

That's the BAD NEWS!

The GOOD NEWS is that he can mitigate the U.S. taxes by claiming the Foreign Tax Credit (Form 1116) for the Indian taxes paid on that income earned during the residency period.

Further, he should be able to deduct daily living expenses for the B-1 visa period as an itemized deduction using Form 2106 under the argument that the B-1 visa period was a temporary job which did not become permanent until he returned under a different visa status. This assumes he was NOT reimbursed by his employer for those expenses.

Thanks you ATE and taxforaliens for making it crystal clear.

I also need to fill my w-4 form. What all allowances should I opt for ? Currently I am planning to put

1. Yourself (1)
2. Your are married, have only one job and your spouse does not work (1)

Claiming only two will help withholding good amount of taxes if at all I need to pay later. Please suggest.

Because you are a foreign worker, the MOST allowances you are allowed to claim on your W-2 is TWO, so MARRIED with TWO allowances is perfect.