[Daskevin]

Hi,

I was in the US from Jan 1st 2008 to April 3rd 2008 and am back now in US Texas on 3rd Oct 2008 and will be here until next year march 2009.

The total number of days in US is exactly 183 days for this financial year 2008.Will I get a refund while I apply tax returns in 2009.Please let me know

Thanks
Kevin

[MukatA]

What visa do you have? What is your citizenship? How much did you earned and how much taxes were withheld?
This info is needed to answer your question.

[Daskevin]

Hi,

I am on L1 visa and am an Indian.I guess I have to just make my number of days here in US <183 so that I get tax exempt...

Also could you please let me know how can I avoid double taxation...

Thanks

[AtlantaTaxExpert]

If your income is U.S.-sourced (paid by a U.S. company or a U.S.-based subsidiary of an employer from your home country), then the number of days in the U.S. is irrelevent when determining whether your income is exempt from taxation. You could work for two weeks and the income would be subject to U.S. taxation if from a U.S. source.

This being the case, the 183-day Substantial Presence Test is the determining factor in deciding whether you file as a non-resident alien or as a dual-status alien.

If you were in the U.S. for 183 days ro more, you file as a dual-status alien.

If less than 183 days, you will file as a non-resident alien.

In either case, it is likely that the tax owed will be the same.

[Daskevin]

HI,

Appreciate your reply! Could you please outline the benefits of Dual Status Alien ,since I am presently paying tas to Indian govn as well.How does this dual status Alien status reduce my taxes...

Thanks yet again
Kevin

[AtlantaTaxExpert]

In your case, a dual-status return really offers NO advantages over a non-resident alien return.

In either case, you would submit Form 1116 to request a credit for the Indian taxes paid on the U.S.-sourced income.

In either case, you CANNOT claim the standard deduction, but rather must itemize, which includes your daily living expenses (documented on Form 2106) IF you did not receive a tax-free daily living stipend.

More than likely, the tax calculations will be identical be it on a dual-status or a non-resident alien return.

The only difference will be the requirement to submit BOTH Form 1040 AND 1040NR (with Forms 1116 and 2106) in the dual-status return.

On the non-resident return, you would file ONLY Form 1040NR with Forms 1116 and 2106.

[Daskevin]

Okk Gotch you!

Submit Form 1116 to request a credit for the Indian taxes paid on the U.S.-sourced income.Does this mean that I will be getting back the tax amount (from the US fedral gov ) which I paid to the Indian government based on the US sourced Income...

Thanks
Kevin

[The Texas Tax Expert]

It looks to me as though he would be a resident all year, assuming his days are at least 183. Either that or else he would be relying on the treaty.

[MukatA]

It appears to me that Daskevin can not file Form 1116 while reporting only the U.S. income on his U.S. tax return.

If Kevin is reporting income earned in India on the U.S. tax return, then he can file Form 1116.

On the U.S. source income, if he must report it on India tax return, he should claim credit in India for the taxes paid to the U.S.
For India taxes try mytaxes - Index

[AtlantaTaxExpert]

MukatA brings up a good point. If you are claiming a credit for American taxes paid on your Indian tax return, you CANNOT do the same for the U.S. return.

TTE:

I do not see how he could file as a resident alien, because he is out of country for a significant period. It is my understanding that, unlike the H-1 or H-1B visa, someone on a L-1 visa who leaves the country is NOT considered to be a U.S. resident for tax purposes while they are not in the U.S.

[IntlTax]

TTE brings up a good point. If not relying on a treaty, he would seem to meet the substantial presence test and therefore would be treated as a U.S. resident from the first day of presence in the U.S. (Jan. 1).

I am not familiar with the special rule referred to by ATE for L-1 visa holders that exempts an individual from the substantial presence test.

[Daskevin]

My Company is an Indian based MNC and has a subsidiary here in US.I get paid out of India office but in Dollars.
Now if am >183 days do I have to file as a non-resident alein or Dual status.
I do pay tax to India based on my US dollar income apart from fedral taxes here.How can I avoid paying that Global tax.Please suggest.
Appreciate your answers...

Kevin

[AtlantaTaxExpert]

Kevin:

I must stand corrected on my earlier post.

The rule that I cited is one that Roger Adams, an enrolled agent working in the U.S. Embassy in Portugal, spelled out in an article in The Tax Professional Journal:

(I am paraphrasing here) "If a foreign national spends even ONE DAY as a non-resident alien, then he/she CANNOT file as a resident alien in any given tax year if they are single. If they are married, they can file jointly with their spouse and CHOOSE to be treated as resident aliens for the entire year, but this option is available to them ONLY IF THEY ARE MARRIED."

I know from experience and IRS guidance that a worker who arrives in the U.S. on a H-1 or H-1B visa, but then is sent out-of-country by his employer for work purposes, is still considered to be in the U.S. for tax and Substantial Presence Test purposes as long as he continues to work for the employer on that H-1 or H-1B visa.

On my initial post, spending time outside of the U.S. while on a L-1 visa seemed to me to meet the criteria of at least ONE DAY as a non-resident alien, because I thought the L-1 visa was for independent businessmen.

However, after re-reading your initial posting and doing some additional research on the L-1 visa, I have discovered that the L-1 visa is rather similar to the H-1 visa. For this reason, like the H-1 visa holder, it is reasonable to assume that a worker on a L-1 visa who started the year under that visa INSIDE the U.S. then who is sent overseas by his employer for work purposes, is still considered to be in the U.S. for tax and Substantial Presence Test purposes, as long as he was working under the L-1 visa for the entire period of the overseas assignment.

For these reasons, I am revising my earlier guidance: You can file as a resident alien for 2008, filing Form 1040, 1040A or 1040EZ.

[The Texas Tax Expert]

ATE,

I think you are confusing two different issues in your post. Note, an H1B or L1 visa holder would not count foreign days as US days for the SPT. Only days of US presence count for that test.

However, if a person meets the SPT but goes out of the country for various trips, those days (assuming the SPT is met for the year) do not terminate the residency status assuming the person remains a resident through Dec 31.

Hence, in Kevin's case, the only days that count for the SPT are days that he spends in the US. However, if those days add to 183 or more then he will be a US resident. Residency begins on his first day of presence, January 1 according to his post.

[AtlantaTaxExpert]

TTE:

Is that not what I said? :-)

[IntlTax]

ATE, you said:

[A] worker on a L-1 visa who started the year under that visa INSIDE the U.S., then who is sent overseas by his employer for work purposes, is still considered to be in the U.S. for tax and Substantial Presence Test purposes . . .

An individual may be treated as a U.S. resident under the substantial presence test on days when they are not in the U.S. but they are not treated as "in the U.S." The reason that this distinction is important is that the criteria for meeting the U.S. residency status under the substantial presence test depend on where the person is located during the year. It can create confusion to state that someone is treated as "in the U.S." when they are not actually treated as in the U.S. They may simply be treated as U.S. residents.

[AtlantaTaxExpert]

Okay, I see the distinction.

[Daskevin]

Appreciate all your answers... am thourougly confused...
Let me be very specific... I was in US from Jan1st 2008 to April 28th 2008 on L1 visa.I went back to India and meanwhile my L1 expired... Now am again here from Oct 3rd 2008 with renewed L1 visa for 3 years Multiple entry and probably will be here only untiil next year 2009 March end.
SO my querires are

1.When I apply for tax returns next year for 2008 financial year,do I apply as resident alein or Dual status for I am paying the Indian tax the entire year of 2008.
2.Secondly am sure for next year 2009 when I will apply for tax returns in 2010 I will apply as non-resident alein for I will would have been here <183 days in the 2009 financial year.Please confirm
3.Lastly,I feel too much money is going off in tax in India(due to double taxation) and also here as fedral tax,How do I work around the tax to reduce the same.I am single and not married and no dependants here.

My sincere gratitude to all who have been helping me understand all the above.. I definitely appreciate all your efforts,, Keep up the Good work...

Kevin

[AtlantaTaxExpert]

Kevin:

Okay, if your L-1 expired while you were in India, I then assume that you spent at least ONE day as a non-resident alien.

1) That being the case, you will file as a dual-status alien because you WILL meet the Substantial Presence Test for 2008. You will file BOTH Forms 1040NR and 1040, plus Form 1116 to claim a Foreign Tax Credit for the Indian taxes paid on your U.S.-sourced income (this assumes that you are NOT claiming a credit on your Indian tax return for the U.S. taxes paid).

2) It depends. One-third of the 2008 days are counted towards the 2009 Substantial Presence Test, so you start 2009 with 61 days. If you spend 122 or more days in the U.S. in 2009 on your new L-1 visa, you will again file a dual-status return. If you spend LESS than 122 days in 2009, you will file as a non-resident alien.

3) You may be able to have your Indian tax withholding reduced to compensate for the U.S. taxes paid. You will NOT be able to do it in the U.S. due to an IRS rule that REQUIRES all foreign workers to file Form W-4 as SINGLE with no more than one exemption. This is done to ensure that enough taxes are withheld from your salary to cover your U.S. federal income tax obligations.

[Daskevin]

Ok ATE, can you elaborate on Foreign tax credit 1116 form... Is there any calulator available to see how much reduction can I avail here due to taxes paid overseas...

Thanks
Kevin