Hi, I am in New Jersey since August 2012. I am on H1 Visa. My wife
Came to US with me on H4 Visa.

I have following questions on filing tax return for 2012:

1. Am I a resident alien?

2. Do I file as "Married filing separately" OR "Married filing
Jointly"? What are the benefits of one against the others. One benefit
I noticed for filing jointly was that I can deduct my student loan
Interest payments. Please note that my wife cannot work, cannot have
SSN and has zero income. Does "Married filing jointly" is even valid in
That case?

3. Do I need a Tax Identification No. For my wife?If yes then is it
Applicable for both cases (jointly and separately)

4. Is there still the choice about filing-First Year? How is it applicable in my case? Could you elaborate?

Thanks.

You are NOT a residnet alien, but if you wait until May 2013 to file, you can CHOOSE to be treated as a resident alien for 2103 by fling jointly with your wife.

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 2012, and the Form 1116 allows you to claim a credit for the income taxes paid to your home country. Note that you must WAIT until sometime in May 2013 before you can file this joint return.

You will need to apply for an Individual Tax Identification Number (ITIN) for your wife by submitting Form W-7, and that process has undergone some radical procedural changes this past year. 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: This certification can be done by the Indian (I assume you are from India) 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. Since you must wait until June to file, 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 recently announced the opening of 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 passport, asks a few questions, completes the certification paperwork, checks the Form W-7 and tax return, then returns the passport with a receipt for the tax return and 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 list of the TACs are at the link below:

Taxpayer Assistance Center Locations Where In-Person Document Verification is Provided

THIRD ALTERNATIVE. I am a Certifying Acceptance Agent, and I can certify the passport if the TACs are not close.

You would mail the passport and the SIGNED Form W-7 and SIGNED tax return to me. I would contact you via SKYPE, conduct a brief interview with your spouse, certify the passport, attach the certification to the SIGNED W-7 and sign both documents. I would also sign the tax return, then paperclip the W-7 with certification to the tax return, and then mail them to the IRS ITIN Processing Center in Austin, Texas.

The passport I would mail BACK to you via tracked PRIORITY MAIL, so the passport would be out of your possession for about a week.

If the IRS gets the passport, they hold for about TWO months.

The FINAL alternative is to mail in the actual passports themselves, something most of my clients are reluctant to do.

If you believe that you will need professional help filing this year, this IS what I do. Please double-click on my name (Atlanta Tax Expert) above to access my profile. You will find my email address in the signature portion of the profile (scroll down to the BOTTOM of the page).