[abhinav.sriv]

Hello,

I have a question about making the first year choice for H1B.

My wife and I came to the US from India on Oct 1 2011 (I am on H1 and she is on H4). Hence, we will not be resident aliens by April 2012, since we do not meet the green card or the substantial presence test. I understand that there is a provision in this case to make the First Year Choice (for which I will have to ask for a filing instruction till Oct 2012 by filling Form 4868) and then file Form 1040 once I attain Resident Alien Status in 2012. With this background, I had a couple of questions:

1.) Is my understanding stated above correct?
2.) Once I attain the RA status in 2012, will I have to declare my world-wide income for the whole of 2011 on Form 1040. In other words, will I have to declare my Indian Income from Jan-Sep 2011 AND US income from Oct-Dec 2011?
3.) If yes, how is this typically done (converting Indian Rupees to USD, and calculating tax on that amount)
4.) If no, do I just have to declare my US income from Oct-Dec 2011?
5.) While filling Form 4868 for extension, my "Balance Due" would be 0, since my tax has already been withheld (I'm actually supposed to get a return). In this case, I do not need to pay anything now. Is this understanding correct?
6.) When filing 1040 once I attain Resident Alien Status, do I need to submit any other form indicating that I am making the First Year Choice?

Any help in this regard will be highly appreciated; the tax laws are extremely complex, and being new here, I'd be really grateful for advice in this regard.

Thanks,
-abhinav

[AtlantaTaxExpert]

1 & 2) Yes.

3) You can use the average exchange rate, or the rate at time of payment, or the median exchange rate (exchange rate on 1 July 2011) for both the pay and the taxes, but you MUST be consistent and not try to use the rate that is most favorable at the time.

4) No.

5) You need to do a draft return to determine your projected tax liability. If ZERO, you just mail the Form 4868. If there is any liability, then include a check to cover that liability.

6) There is a Residency Choice Statement, contends of which is covered in IRS PUB 519, that must be attached to your tax return and signed by BOTH you and your wife.

BTW, does your wife have a SSN? If not, she will need to complete Form w-7 and submit it with the tax return to apply for an ITIN.

If you want my professional help, double-click on my title above and scroll down to my profile/signature. You will find my email address and websites there.

[abhinav.sriv]

Thanks a lot for your response! Just one follow-up question:
How will the IRS verify my Indian income that I state for Jan-Sep 2011? In other words, if there is no proof document that I need to attach to substantiate my global income, how will they verify it?

I am currently trying to quantify the additional tax liability that I will incur by declaring my global income, v/s the amount (of return) that I will lose if I file taxes this year as an NRA, since I will not be eligible for standard deduction.

Any disadvantages of filing as an NRA this year (apart from losing on a substantial return amount), and then applying as a resident next year when I meet the substantial presence test?

I will surely get in touch with you if I need professional help in filing the forms. Thanks for your help.

[AtlantaTaxExpert]

Most of the time, the IRS does NOT verify your foreign income. They just take you at your word.

However, they can ask you for proof of the income should they decide to check.