[zatang90210]

Hi,
I was on F-1 from 2002 till Oct 2005. Then I changed to H1B with my employer in Oct 2005. I was on F1 working with the same employer from Jan - Oct 2005 on OPT.

I had filed 1040NR-EZ till now for all previous years as I did internships/TA etc on F-1.

For 2005, what forms do I file?

Also, I got married in Dec 2005 and even my wife worked on OPT till Jun 2005 lasy year in NY. Can we (or should we) file joint? What forms?

Now we stay in TX, so can we file joint even though she had worked in NY?

Any help appreciated.

Thanks

[AtlantaTaxExpert]

Zatang:

I already answered your other post. Please refer to it.

[Avalanche]

Hi Atlanta,

I have couple of questions about filling the tax forms and I would appreciate any help. I was a student with F-1 in IL between Aug 2002 and Aug 2005. And for the tax years 2002, 2003, and 2004 I filled 1040NR-EZ and 8843 for federal taxes. I also filled IL tax forms as a nonresident. In Aug 2005, I moved to AZ and started to work under OPT. My H1-B was approved in November. Although I haven't gone back to my country and got the visa stamp, I think approval is enough for the change of my status. At least I have been paying Social Security and Medicare taxes since last November. Since I had the H1-B only for 2 months in 2005, I don't pass the substantial presence test. Here are my questions:
1) If I fill the 1040NR as a nonresident for the full year, will having the H1-B for 2 months be a problem?
2) If I decide to go with the first year choice, fill extension forms, and send my tax forms when I meet the 183-day test (around June 2006), can I fill only 1040 as a resident? If so, am I supposed to pay the SS and Medicare taxes for the whole year?
3) Is the definition of residency same for federal and state taxes? As I have already mentioned, I always filled the IL forms as a nonresident. If I choose to fill 1040NR for federal taxes, can I fill both IL and AZ tax forms as a nonresident? What if I wait for the first year choice? Can I still send my state forms as a nonresident?
4) I have two W-2s, one from IL and one from AZ, and I have to attach both to the fed tax form for sure, yet what about the state forms? In my state forms, should I report my whole income or just the portion that I earned in that state?
Thanks in advance.

Regards,
Avalanche

[AtlantaTaxExpert]

1) You are not a non-resident alien. You are dual-status and, if you do not do First Year Choice, should file a dual-status return. However, with only two months on H-1B, you can probably file a s a non-resident and the IRS will not challenge it, since the tax liability will be the same.

2) You can file Form 1040, 1040A or 1040EZ, whichever one you can qualify for. Filing as a resident alien will have no effect on your Social Security and Medicare tax exemption.

3) Actually, you have filed incorrectly in Illinois for the last three years. While you were a non-resident alien in 2002, 2003 and 2004, you were a resident of Illinois. Probably not a big deal, as it is likely you paid the same or more income taxes than if you had filed as a Illinois resident. Same logic applies to Arizona. File as a part-year resident for both Illinois and Arizona in 2005, then as a resident of Arizona in successive years.

4) When you file the part-year resident tax returns for both states, attach both copies of the W-2s to each return, along with a copy of the other state tax return. However, only report the income earned in each respective state. Providing the extra W-2 and the other state's tax return shows the state authorities that yo are paying taxes in another state and are not trying to short-change them.

[Avalanche]

Thanks for the quick reply Atlanta. I checked my old IL tax forms. Resident or not, tax is the same as you mentioned. One last question. If I file as a resident alien under 1st year choice, can I use $5000 standard deduction?
Thanks again.
Regards,
Avalanche

[AtlantaTaxExpert]

Avalanche:

Yes, you can.

That is the primary reason most people opt to wait the 4-6 months needed to qualify under First Year Choice.

[goelvicky]

I cannot decide if I am eligible to claim the $5000 (or 4850?) standard deduction. I was on an F-1 visa from aug 2000 until Sep 30 2005 (on OPT from June 29 2005 - Sep 30 2005). I have been on H1-B since Oct 1 2005. I suppose that means I count as a non-resident for tax purposes. Firstly, is that correct? If so, I will file 1040NR and not as a dual-status person

(I do not pass the substantial presence test since the number of days of stay in US while not on F-1 visa do not total to 183 days)

Here is my second question. Now, according to pub 519, student/business apprentices who are residents of india (which I am) can claim the standard deduction of $5000 (or 4850?). I am wondering if I qualify since I have been a student for 9 of the 12 months in 2005

I will appreciate some help on these qns
THanks
Vikas

[AtlantaTaxExpert]

Vikas:

I answered this under the other post!

[goelvicky]

Atlanta tax expert
Thanks for the reply. I read pub 519 to figure out why I am a dual status alien. But it is not clear to me at all. I believe I do not pass the substantial presence test. And I do not have a green card. I guess that means I am a non-resident for tax purposes. Is that not so?

I think at a higher level, I do not understand how a person could be a resident and a non-resident in the same year. All definitions for these categories that I have seen are based on the substantial presence and green card tests and they seem to specify resident/nonresident alien status FOR THE ENTIRE YEAR.

What am I missing? Also, I got the impression from some of you postings that a dual status alien does not have to pay ANY social sec/medicare taxes. Even on income earned while on h1. Is my interpretation correct?

I appreciate your help
Thanks
vikas

[AtlantaTaxExpert]

Vikas:

I admit that IRS Pub 519 could have been written a LOT clearer. You need to read it several times to get the intricacies.

As for SS and Medicare taxes, bottom line: You begin paying the day you start on H-1 visa status. The IRS is quite clear on that!

[RAHUL BHOSE]

Hi Atlanta Tax Expert,

Its been a long time since I have posted regd. Tax returns. Our previous posts are below for your reference.

I had to clarify a few final things and require your help regarding these. Kindly respond.

1) On using a tax software, it enters on line 37 of 1040NR, amount of 1.3K which is way below the standard deduction of 5K I was expecting to be mentioned?
This amount is actually my state and local income tax.

a) Just wanted to clarify who is eligible for claiming 5K standard deduction?
To reiterate, I was on OPT from Jan 2005 to Sept 30 2005 and got H1B on Oct 1 2005.

b)If I claim 5K is the US-India tax treaty Article 21(2)?

c)Could you send me a link where 5K is mentioned as standard deduction. I could not find this.

2) My Bank interest of around 100 is mentioned on page 5 as Non taxable Bank interest using the software? Last time I was told by you, that

bank interests should be treated as regular income. Please clarify?

I was reading Pub 519 (Page 2 of 70) where it is mentioned, under
What's new for 2005?
Dividends Paid to Non Residents: The following dividneds may be exempt from 30% tax
- Dividends paidby foreign corporations
- Interest related dividens
-Short Term capital gains an dividends

Is this gain Non Taxable? As a Non Resident?

I also have just heard from friends ( not a very reliable source though ) that these can be treated as Non Taxable Ban interest.
Please clarify

3) My short term gains and loss though stocks was added and then multiplied by 30% in line 88 of 1040 NR and this amount was then added on line 53 as "tax on income not effectively connected with US trade from page 4 line 88"
I have 2 questions here
- At one place as mentioned, they have said no 30% tax on short term capital gains and dividends
- If it is to be reported as income, should it be reported on Schedule D

4) Is the amount for 401K( retirement plan) to be reported anywhere on the
tax form? The amounts are accumulated every month into my 401K and I did not withdraw it. So I guess all these just accumulates over the years and need not be reported?

Previous posts below for your ready reference

Thanks in Advance

RB





#115 Comment on this Post Jan 21, 2006, 05:36 PM
RAHUL BHOSE
New Member Join Date: Jan 2006
Posts: 5


Hi
I am a citizen of India and I had almost similar questions to others. But I would to please clarify the situation.
OPT Started from Jan 20' 2005 and is valid till Jan 20' 2006. My H1B was approved and started work on H1B from Oct 1 2005.
1) As I clear the substantial presence test, am I eligible to file form 1040 NR_EZ?
2) Am I eligible for standard deduction for year 2005? If so what is the standard deduction under the US income tax treaty?
3) Are the forms I would have to file for Federal Income Tax be 1040 NR_EZ and 8843 only?
4)I don't think I would come under dual status as I have met the substantial presence test. Is that correct?
5) Do I have to pay tax on any local bank gains / stock investment gains prior to Oct 2005?
6) Can I claim for stock loss (income - loss = net income) only after Oct 2005? Or can I claim it for the entire year?

Thanks in Advance


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#116 Comment on this Post Report Inappropriate Post Jan 22, 2006, 03:02 AM
AtlantaTaxExpert
Tax Expert Join Date: Feb 2005
Location: Atlanta, Georgia
Posts: 1,131


RAHUL BHOSE:

1) Yes, you can file Form 1040NR-EZ if that is your desire.

2) Yes, your standard deduction will be $5,000.

3) Yes, to my knowledge, those are your only required forms.

4) You do not qualify for Substantial Presence, at least not yet. If you did, you could not file Form 1040NR-EZ. You can wait until you do qualify for Substantial Presence, at which point you would file Form 1040 with the statemment required by IRS Pub 519.

5 & 6) Yes, you must pay on local bank interest and stock investment gains/dividends, but you can also deduct or stock losses or the entire year.
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#117 Comment on this Post Jan 22, 2006, 03:37 AM
RAHUL BHOSE
New Member Join Date: Jan 2006
Posts: 5


Thank You Atlanta Tax Expert for your very prmpt response. Just wanted to reclarfiy the following


1) From Your prvious posts of three choices
"You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.
"

Is there any tax benefit of one over the other?

2) I was assuming by filing 1040NR EZ, I can avail of the standard deduction which I don't think I could have by the latter two.

3) Would the bank dividends be considered as regular income for the full year or only from Oct 2005 onwards.

Thanks once again.

Regards,

RB


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#118 Comment on this Post Report Inappropriate Post Jan 22, 2006, 07:20 PM
AtlantaTaxExpert
Tax Expert Join Date: Feb 2005
Location: Atlanta, Georgia
Posts: 1,131


RB:

1) If you file as a resident alien, you may be eligible for certain credits (like the Education Credits) that you cannot claim under the other options. Other than that, the tax liability will probably be about the same.

2) You can claim the standard deduction on all three option.

3) Distributions from a bank are not dividends. They are interest, which will be considered ordinary income for all of 2005.
__________________
Hope This Helps!

Atlanta Tax Expert

[RAHUL BHOSE]

Hi Atlanta Tax Expert,

Just to clarify point 2 in my previous post
"My Bank interest of around 100 is mentioned on page 5 as Non taxable Bank interest using the software" This is Line 5 of form 1040 NR stating
" L Have you excluded any gross income other than the foreign source income not effectively connected with a US trade or business "
And this was ticked marked as "yes"

Kindly respond to the previous post

Thanks and Regards,

RB

[AtlantaTaxExpert]

Rahul:

1a) In my opinion, you are eligible for the $5,000 standard deduction. You may have to over-ride the software.

1b) The article you cited [21(2)] is correct for the $5,000 standard deduction.

1c) The standard deduction is $5,000. You can verify this by looking up IRS Pub 501 from www.irs.gov.

2) If you file as a non-resident alien, then the bank and dividends are not taxable (I do not believe this filing option is available to you, given the fact you have switched over to H-1B status). If you file as a resident alien, they are taxable. If you file as a dual-status alien, the interest/dividends earned while under the F-1 visa are taxable at a 30% flat rate unless the India-U.S. Treaty sets a lower rate (which it does not), but the interest/dividends earned while under the H-1B visa are taxable at normal U.S. tax rates.

3) The software has it right if you did the stock transactions under the F-1 visa. The dual-status makes money made on stock transactions, dividends and bank interest taxable at a 30% rate. I had to do some research to verify this.

4) It is reported by tax software for resident/U.S. citizen returns on the W-2 mask. It is probably not needed for a non-resident or dual-status returns.

Some of your questions require a lot of research, which I do not have time to do in my busy season. Your software is accurate in some areas, but not in others. Remember, the software does not think and does not have experience or judgement.

If you have extensive stock transactions, dividends and interest, you really need to get professional tax help, especially if you will file a dual-status return.

[RAHUL BHOSE]

Thank You very much for your prompt response, Atlanta Tax Expert,

From our previous discussions it does look like I qualify filing as a non resident alien as my H1B started on Oct 1 2005 (and was on F1 from Aug 2002-Sept 302005) in which case I would not clear the substantial presence test?
Which would imply regd. You
Point 2) the bank interest would not be taxable in that case ?

Regd point 3) I did some transactions before Oct 2005(F1) and during and after Oct 2005(H1B) but if I file as Non resident because of the above stated(not clearing substantial presence test), Could I consider net gain taxable at 30% rate?
If I mention the gains under these, I need not have to fill Schedule D, right?

Though all these are nominal amounts, I would not want any errors from my side, hence wanted to clarify from you.

Thanks & Regards,

RB

[AtlantaTaxExpert]

RB:

You cannot file as a non-resident alien. Your only options are dual-status or resident alien.

In either case, the bank interest, the dividends and the stock transaction are taxable. The only issue is at what rate:

30% as a dual status alien

OR

Normal tax rate as a resident alien (probably 15%; maybe 25%).

Your choice!

[RAHUL BHOSE]

Hi Atlanta Tax Expert,

I guess I am back to Square one again.
Few months back, I was confused as to whether I was a resident or non resident for tax purposes, and on reading previous posts, your reply to my posts and Pub 519, it looked like I was a Non Resident Alien for Tax purposes for 2005 as I would only complete the substantial presence test 183 days from Oct 1 2005 (as this was the time my H1B began) , after which (April 1 2006) I would be a Resident Alien?

I thought I had three choices
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice

I would request you to clarify this basic question?


Thanks & Regards,

RB

[AtlantaTaxExpert]

RB:

Further research and a detailed reading of an article in Tax Professional Quarterly has caused me to revise my guidance. If you have more than several weeks on H-1B status, you are a dual-status alien, period! There can be no option to file as a resident alien.

That does not mean you won't get away with filing as a non-resident alien. Such filings are done all the time and are never noticed by the IRS. However, as the resident expert to this forum, I cannot advice such a course of action because it is contrary to my current interpretation of the Internal Revenue Code.

[RAHUL BHOSE]

Thank You Very Much, Atlanta Tax Expert

Your prompt replies have been very helpful

Regards,

RB

[goelvicky]

Hi AtlantaTaxExpert
I read Pub 519 several times to figure out why I am a dual status alien (like you said I am). My background info is as follows.

* am citizen of india
* Entered US in Aug 2000 on F-1
* Was on F-1 until Sep 30, 2005. Filed 1040 NR for 2000-2004
* Switched to H-1 on Oct 1, 2005

Question of course is: what is my tax status for 2005.

My understanding is for 2005 I do not pass the substantial presence test since being on an f-1 visa until sept 30, 2005 makes me an exempt individual for jan 1, 2005- sep 20 2005. And that these days do not count to the substantial presence test. So I should be a Non-resident.

The only possible catch is that I have already filed as non-resident for 5 successive years (2000-2005) and it seems (though is not clear) that the exemption as student can be claimed for 5 years only. If that rule is applicable, I would be a resident alien.

In fact, I called up the IRS and asked them whether I am a resident, non-resident or dual status. The lady said people can be dual status only in the year in which they enter or leave the US. So I cannot be one. She was not totally sure about the 5 year restriction on the exemption in the substantial presence test but after some research she said she thinks that I can claim the exemption and that I am a non-resident.

Given that you told me I am a dual-status, I am not sure what status to file as. I would really appreciate if you could help me to understand why you said I have to file as dual status. (I have a feeling my tax return would look fairly similar, except for interest earnings, if I were to file as a resident or non-resident; cannot say about dual status)
Thanks
Vikas

[AtlantaTaxExpert]

Vikas:

I do not recall seeing the 2000 - 2004 timeframe in your original account, Be that as it may, based on the input above, you are a resident alien, as the maximum five-year rule under F-1 status applies.

Ignore what the IRS lady said. Most of the IRS (or, for that matter, tax preparers) do not deal with resident and non-resident aliens, so they do not know the rules very well. When you are on F-1 status, it is as if you are not even in the United States. That lasts only for five years, and any day in the year you are in the U.S. under the F-1 visa uses up the entire year.

You have used up the F-1 visa exemption in 2004. For this reason, you can file as a resident alien in 2005.