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sylviawp · Mar 18, 2009, 03:10 AM

Hi,

I am preparing the tax return for Year 2008, need some help to decide whether I should make the first year choice.

My husband was transferred by his company from UK to US head office in Oct 08 with L1 visa. Me and our daughter joined him in Nov08 and stay in US since. He works full time and expect to stay US for whole year 2009. I don't have any income in US or UK. We are both UK citizens.

Here are my questions?

1) If my husband make the first year choice for 2008 tax return, what tax status he belongs to? Dual-Status or he will be treated as Resident only for the period from Oct 08 till the end of year 2008?

2) If he make the first year choice for 2008 tax return, then we file a joint return, in Form 1040, we can claim $10,900 standard deduction, and $10,500 ($3,500*3) exemptions as normal resident even though we only stay in US for 3 months for Year 2008. Is it correct?

3) As we don't have much income in UK since we move to US, should I presume that make the first year choice to file 1040 as joint return, will pay less tax compared to my husband file 1040NR on his own? If he file 1040NR, he doesn't have standard deduction, and he can't claim exception for me and our daughter? Is that right?

4) if we file 1040, do we need to report the world wide income for the whole 2008 or only the 3 months after we move to US?

Your help will be much appreciated.

MukatA · Mar 18, 2009, 07:21 AM

He has two choices:
Choice 1: File non-resident tax return. He will get $3500 exemption, itemized deductions and moving expenses for all of you. It this makes his taxable income nil or low, he can go for this.

Choice 2: You can file resident tax return as Married Filing Jointly. You will have to wait for 5 months to file your tax return till you meet the Substantial Presence Test in 2009.

You will get standard deduction of $10,900 and exemptions for both of you and the daughter.

You must both declare your worldwide income for 2008. If you have any foreign income, and on that income you paid taxes in the foreign country, then you can claim foreign tax credit (Form 1116) or you can use Foreign Earned Income Exclusion (Form 2555).

You will complete forms W7 (application for ITIN) for your spouse and child and attach with your tax return.
You can also deduct moving expenses. Use form 3903.
Read about L1 tax filing: Your U.S. Tax Return: The U.S. Visas

sylviawp · Mar 18, 2009, 01:56 PM

Thanks very much, MukatA.

Your answer make things a lot clear. But there is one more thing I am still a bit confused.

Quote from Publication 519 2007 regarding First-Year Choice. " If you make the first -year choice, your residency starting date for 2007 is the first day of the earliest 31-day period that you use to qualify for the choice. You are treated as a U.S. resident for the rest of the year"

So to my case, we will be only treated as U.S. resident from Oct 08, therefore, we should only report world-wise income for the period Oct08-Dec08, rather than the whole year 2008. That is how I understand after reading the paragraph above.

Please correct me if my understanding for the reporting period of world-wide income is wrong.

Thanks for your help.

Best Regards

Sylvia

IntlTax · Mar 18, 2009, 07:57 PM

You will be making two elections - first year choice and joint tax return. By making the joint tax return election, both you and your wife will be treated as residents for the entire year. Thus, you will need to include worldwide income for the entire year.

MukatA · Mar 18, 2009, 11:35 PM

sylviawp:
Read a few more pages.

sylviawp · Mar 21, 2009, 12:53 AM

Thanks very much, IntlTax and MukatA.