[GoyoNeuff]

Hello all!!!:)

First at all, this is a great forum! I've been reading a lot of posts, and they are very very useful. Now I got a question for the tax experts and non-experts too:p!!

This is my case:
I was studying and working as a Teacher Assistant in Oklahoma from 08.26.02 to 03.06.05. Then I moved to Houston, TX and have OPT from 03.07.05 and started to work. Neither Social Security nor Medicare Taxes were withheld by the Company. I changed status to a H1B-Visa on 10.01.05.

For the 2005 taxes:

• 01.01.05 to 03.06.05 ----> F-1 status (Oklahoma) with federal and state taxes withholding. No Social Security nor Medicare Taxes.
• 03.07.05 to 09.30.05 ----> F-1 OPT status (Texas) with only federal taxes withholding. No Social Security nor Medicare Taxes.
• 10.01.05 to 12.31.05 ----> H1B status (Texas) federal, social security, and medicare taxes withhold.
• I'm married and my wife doesn't work, but she has a ITIN we used the last two years.

Questions are:

1. What type of form should I use?
2. Am I a "resident" (for taxes purposes) of the state of Texas? If so,
3. What happen with the state taxes paid in Oklahoma? Can I get them back?
4. What happen with the Social Sec. and Medicare that were withhold under the H1B Status?
5. Can I itemize any allowable deductions.
6. Can I file a joint return since I'm married and she already has a ITIN?
7. Can I use the form 8863 for Educational Credits that I had use in the past?

Thank you all for your help!!

K.

[AtlantaTaxExpert]

GoyoNeuff:

1) You have several options. Technically, you should file as a dual-status alien, filing Form 1040 with Form 1040NR as an attachment. See IRS Pub 519 for procedures. However, you qualify to file as a resident alien (Form 1040) unde the First Year Choice (see IRS Pub 519). Filing as a resident alien will not affect you not having to pay Social Security and Medicare taxes while under the F-1 visa.

2) You are a part-year resident of Texas.

3) You were also a part-year resident of Oklahoma, and therefore must file an Okalhoma tax return to pay taxes only on the income you earned while in Oklahoma.

4) The Social Security and Medicare taxes are flat taxes for which you became liable when you got the H-1B visa. They are withheld from your salary and your employer sends the money to the IRS. You have no furtherreporting requirements.

5 & 6) You can file some itemized deductions as a non-resident or dual-status alien, but the deductions expand if you file as a non-resident alien. You can also claim a standard deduction of $10,000 if you file as a resident alien and file jointly with your wife. The standard deduction is not available to you as a non-resident alien or a dual status alien unless you are an Indian citizen. You cannot file jointly as a non-resident alien (Form 1040NR).

7) You can claim the Education Credits using Form 8863 only if you file as a resident alien.

[GoyoNeuff]

Thank you very much Atlanta Tax Expert!
For what I see, it will be much easier for us if we can file as a resident alien, that way I can file w/my wife and claim the Education Credits using form 8863. So the main question is if I should or not file as a Resident. Would you please explain me more about the First year choice? I read the 2004 519 Pub. But I cannot understand why I can use this as a reason to file as a resident.
Also, do you think that I can use programs such as Turbotax, or similar to do my taxes having the fact that I have to file in Texas and in Oklahoma?
If we file as a dual status, can we use Turbotax or similar programs? Which software would you recommend to us?

Thank you very much

GoyoNeuff.

[AtlantaTaxExpert]

GoyoNeuff:

The First Year Choice is an alternative to filing the overly-complicated dual-status return. The only drawback is that only one month of your H-1B status in 2005 counts towards the Substantial Presence Test. Since you have to be present in the U.S. under H-1B for a total of 183 days before you file your resident alien tax return, you will have to wait until early June before you can file. You should file an extension (Form 4868) to cover yourself.

You can use TurboTax for the resident return in June 2006, but not for the dual-status return. In fact, if you decide to go with dual-status, I recommend you get professional tax help.

BTW, Texas has no state income tax. The only state return you will need to file is for Oklahoma.

[GoyoNeuff]

Thank you Atlanta Tax Expert!
Well, allow me to ask this:
1. What happen if I have to leave the US before early June to an overseas assignment and not longer work here in the US?
2. If I file as dual, I'm not longer allowed to file with my wife, so I would think that the amount of cash back will be less, right?
3. If somebody, maybe you Atlanta Tax Expert, can explain to us what are the main differences between a dual-status and resident return in terms of the benefits/drawbacks we would appreciate it very very much. We don't own anything, so filing as a resident is very easy, we might not even need Turbotax or similar.
4. If we decide to file as resident, which of the popular software or/and online services would you recommend?

Thank you very much

GoyoNeuff

[AtlantaTaxExpert]

GoyoNeuff:

1) If you leave before you qualify under the Substantial Presence Test, then you really have no choice but to file a dual-status return.

2) If you are an Indian citizen, you can both claim your wife as a dependent and claim the $5,000 standard deduction. If not Indian, then you are likely correct that you cannot claim your wife.

3) For most people, dual-status returns are very complicated and prevent you from claiming your dependents and the standard deduction. This results in a significantly higher tax bill. That is the major drawback.

4) For on-line software, I prefer TaxAct. I use the professional version of TaxAct and am very happy with its performance to date.

[GoyoNeuff]

Hello Atlanta Tax Expert.
Thanks for your help.
I was reading the Pub.519 and I think that I can use "Choosing Resident Alien Status".
1. We both were non-resident aliens at the beginning of the year.
2. We both were resident aliens at the end of the year (H1B and H4 (spouse))
3. My spouse is joinning me on this.

Let me know what do you think about this option.

Thank you very much,

Camilo.

[AtlantaTaxExpert]

Camilo:

If you were both resident aliens (met the Substantial Presence Test), then, by all means, file Married Filing Jointly as resident aliens, using Form 1040/1040A/1040EZ.