Atlanta tax expert,

I plan on permanently leaving US this month. Would appreciate if you could respond to my questions below. Thanks.

1)Can I file form 1040 in 2016 and in 2017?
2)I am from India. If I need to file 1040-NR next year am I eligible to claim standard deduction and exemption for dependents?

1) Yes for 2016, because your default Residency Termination date is 31 December 2016. You will have to declare ALL world-wide income and claim the Foreign Tax credit (Form 1116) for taxes paid to India.

No for 2017, unless you are a green card holder or U.S. citizen, because you will have become a non-resident alien.

2) No on the standard deduction and claiming dependent exemptions. That applies only if you are on a J-1 or F-1 visa while present INSIDE the U.S.

So, is it correct that in 2017 I get no standard deduction and only one exemption?

Yes, but if you are in India for all of 2017, WHY would you file?

I am considering if I should do a 401K withdrawal either this year or next year?

You should wait until you return to India if you do the withdrawal. That way, no STATE income taxes will be due.

Better yet, roll the money over into a IRA and manage it from India using the Internet.

Are there any state taxes if I make a 401K withdrawal? I currently live in Illinois?

Yes. If you make the withdrawal while living in Illinois, the state of Illinois considers it Illinois-based income and will tax it accordingly.