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magicman2007 · Jan 6, 2008, 01:46 PM

Hi,

I and my wife arrived in USA for the first time on 14th July 2007. So I will be NRA for the year 2007 in US. I am on L1B visa and my wife is on L2 visa. My Wife got EAD to work in USA on 1st Oct 2007. My questions are:

1. Can I file 1040 form instead of 1040NR as I am an Indian and USA have tax treaty with India?
2. If I have to file 1040NR can I claim Excemption for my wife and Deductions of $10,300 under India and USA tax treaty?
3. What form should I file in order to get maximum ta benefit?

Kindly reply.

Thanks & Regards,

AtlantaTaxExpert · Jan 6, 2008, 02:46 PM

1) You can file jointly and BOTH of you choose to be treated as resident aliens if you will be in the U.S. past 30 May 2008. That will allow you to claim the double standard deduction of $10,700.

2) If you file dual-status or NRA, you CANNOT claim your wife because she has her own U.S.-sourced income (on which she must file her own tax return, probably as an NRA).

3) Filing jointly will probably be the best way to go. The only way to know for sure is to prepare the returns BOTH ways and compare the results.

MukatA · Jan 7, 2008, 02:29 AM

magicman2007:
The India U.S. tax treaty does not restrict L1 visa holders to file as residents. On your 1040NR return, you can only claim your own exemption and not even your own standard deduction even as per the tax treaty.

So it appears that it may be the best option to file as residents and as Married Filing Jointly. You will get standard deduction of $10,700 and exemptions of $6,800. You must declare the world wide income for both of you from Jan 1, 2007 to Dec 31, 2007. You will get credit for taxes paid in the foreign country.
Now the question is How soon you can file your tax return as residents? You have not met 183 days residency test in 2007.

AtlantaTaxExpert · Jan 7, 2008, 07:54 AM

MagicMan was in country for 170 days in 2007. He can only count one-third of that time (56 days) for the Substantial Presence Test.

That means he must wait until about May 8th before he can file.

MukatA · Jan 8, 2008, 12:34 AM

So MagicMan should prepare his tax return. Pay all due taxes before April 15, 2008. Send form 4868-- Extension to file before April 15, 2008.

AtlantaTaxExpert · Jan 8, 2008, 07:05 AM

Yes, that would be the procedure.

More than likely, he will be due a refund, in which case filing the extension is a pro forma action that has no effect one way or the other.

Once 8 May rolls around, he then mails the return.

magicman2007 · Jan 21, 2008, 08:03 PM

Thank you MukatA and AtlantaTaxExpert..
Hopefully I will be staying in USA till 8th May and file return after that..
So as you have discussed.. by the First-year choice... I can be resident for 2007..
The residency begning date for me will be my first arrival date in USA.. which is 14th July...

AtlantaTaxExpert · Jan 23, 2008, 12:08 PM

MagicMan:

Actually, First Year Choice applies to filign a dual-status return.

Under the dual-status, there is the OPTION to be treated as a resident alien by filng jointly with your spouse.

This option is available ONLY IF YOU ARE MARRIED.

If you are single, you can only file dual-status, which is a complicated way to file and normally does NOT prodice any tax advantage over filing as a non-resident alien.