Please advice:
1. year 2003 : Status F1 - filled - 1040 NR EZ
2. Year 2004 : Jan 01 2004 - sept 07 2004 - F1
: Sept 08 2004 - status changed to Permanent Resident.
Nationality : Indian

Due to too many complications in Dual status filing, I would like to opt to file as resident. Could I do the same.

Do you see any advantages / disadvantages in filling in either of the status.

While under F1, the social security and medicare tax was waived and my W-2 for 2004 shows the respective colomns as blanks.If I opt to file as resident will I have to pay the social security and medicare tax. And at this point how do I pay it. I did also get the social security statement where in, there was no amount put in for the year 2004. Will I be penalized for not paying the social security and medicare tax. Also I was working 40 hrs at my student job.

My main intention, as is the case with every other person is to be able to reduce the taxable amount. I would like to claim my spouse as dependent as well as university tuition fees. (which I would not be able to claim under dual status filing).

What's the maximum university tuition fees that I can deduct from total income.

How can I put in sales taxes to be taken out as deductions.

Lightning:

You should be able to file as a resident alien under the First Year Choice option. If you file as a resident alien, you cannot claim your spouse as a dependent. You should, however, be able to file Married Filing Jointly.

You are not dual status because you did not meet the Substantial Presence Test in 2004.

For sure, you will not be held liable for the Social Security and Medicare taxes while you were on F-1 status. That's covered by tax treaty.

Social Security and Medicare taxes should have been withheld as soon as you converted to H-1 visa status. However, if you properly informed your employer of your changed visa status and they failed to to withhold the Social Security and Medicare taxes, that is not your problem, it's the employer's. The employer is mandated to pay the employment taxes and collect the employee's share from their paycheck. If they fail to do so, they have a set time to collect these taxes after the fact. I believe that time has expired, so you should nothing to worry about.

The maximum Education credit you can claim is $2000, or you can claim a deduction of $4,000, but not both!

Claiming sales taxes is practical only if you live in a state with no income taxes (or you are exempt from state income taxes for some reason). It is an itemized deduction claimed on Schedule A.

Thanks a bunch for the earlier advice. I will be going the resident route.
By the way will I have to declare my income from various sources in my home country if I elect to file as resident and if so will they be taxed in the US.

I have a few more question if you care to answer.

1.Is it better to Claim Educational Credit rather that put it as a deduction.
As I find that it reduces my taxes to a higher extent.
2. For the Spring 2004 sem I had paid the tuition fees ($4332)to the university on Dec 11, 2003. As This is an expense for the year of 2004, can I put down the that amount along with that of fall 2004 ($ 6984) totalling to $ 11316 to claim a larger educational credit. The 1098-T for 2004 from the univ has the fees paid for the fall 2004 sem only and the 1098-T for 2003 has the amount $4332 showing up as pre billed for the following spring 04 sem.
Your advice on the issue is most appreciated. Thanks in advance.

Lightning:

If you file as a resident alien, then ALL sources of income worldwide are subject to U.S. income taxes.

The tuition paid in 2003 cannot be claimed on your 2004 tax return. The Form 1098-T is the audit trail provided to the IRS to prevent people from claiming education credits they are not entitled to.

Besides, it will not make a difference in your case. Education Credits are capped at $2,000 for the credit or $4,000 for the deduction. Your 2004 1098-T shows $6,984, so your tuition paid in 2004 already exceeds the cap.

As for which is better, the deduction or the credit? I cannot answer that with the information provided. Prepare the returns both ways to determine which works out best for you.

My wife was an independent contractor (1099 MISC) for the whole of 2004, though in 2 different jobs and 2 different states, one that has no state income tax.

What form/schedule does she use to deduct expenses related to her contractual work (cell phone, mileage on car, gas, depreciation of car, car payments, insurance, interest paid on car loan)?

Where can she e-file her return for the money she made in the state that has an income tax?

Lastly, how (on what form) do we deduct either my wife's income tax or our combined sales tax?

THANKS!

Lightning:

Independent contract work is reported using Schedule C/C-EZ. If she wishes to deduct the expenses you cited, she should use Schedule C to claim those deductions.

The TaxAct website (www.taxact.com) may let you electronically file the state tax return after you prepare it as a part-year or nonresident taxpayer. However, there is no guarantee that TaxAct will have the part-year or nonresident tax forms on its software. It is the only complaint that I have with TaxAct: its software sometimes leaves out forms that are needed by many of its customers.

If not, just prepare the return manually and mail it.

The income tax deduction is calculated on the Schedule A which is part of the Form 1040NR tax form packet. Deducting sales taxes is not an option for nonresident tax filers.