[khalidsayeed]

Hello,
I am a new member. Its nice to see so many people here who can help. Here's my situation:

My status in 2004: Student on F1 (I still am on F1 until my H1 is approved)
Was attending school full-time until: August 19, 2004
Working on OPT since August 20, 2004.
My nationality: Indian

I have one W-2 from school (I was a T.A.)
One 1099-MISC from my employer (I was working as a contractor initially)
One W-2 from the same employer (They hired me full-time on Sept 29, 2004)

My withholdings on the W-2s were perfect. I did not pay social security/medicare on both W-2s. But there was no withholding on the 1099-MISC. I made more than USD 19K as an independent contractor and paid NO taxes on it. They put that amount in box 7, under "Nonemployee Compensation".

I was in the U.S. for more than 183 days, in Massachusetts, same address. No income from any other states or sources.

My questions:
1. What should I file as: Resident, Non-Resident or Dual?
2. Am I liable for taxes on the 1099-MISC income?
3. Am I eligible for tuition deductions/credits? (I paid tuition during 2004)

Thanks and regards,
-MKS

[AtlantaTaxExpert]

Khalidsayeed:

You are a nonresident alien and should file Form 1040NR.

You are liable for income taxes on the income reported on Form 1099-MISC. You need to prepare Schedule C to document the Form 1099-MISC income. You should also claim all legitimate deductions on the Schedule C to reduce that income.

Since you are under a F-1 visa, you are exempt from Social Security and Medicare. Therefore, you are also exempt from self-employment taxes. Do NOT prepare and file a Schedule SE.

Since you are a nonresident alien, you cannot claim any education credit.

[khalidsayeed]

Thank you for the prompt response, I appreciate it.

"Since you are a nonresident alien, you cannot claim any education credit"

OMG, I claimed the lifetime learning credit last year and the year before! The wizard on Turbo Tax did not ask whether I am a non-resident or not. I suspect it filled out 1040 for me..

Please advise as to what I can do now? :-(
-MKS

[AtlantaTaxExpert]

MKS:

First, double-check the printed copy of the return to make sure an education credit was claimed. It will be on the second page of Form 1040 under trhe "CREDITS" section of the form. If a credt was granted, then you have two choices:

1) Do nothing and hope the IRS does not catch it. If three years goes by and you do not hear from the IRS, then it is likely nothing will come of it.

2) Amend the returns from those years and unclaim the credit. You will have to pay the Lifetime Learning Credit back plus interest, but, since you came forwartd, it is likely the IRS will not assess any penalties.

If the IRS does catch it, penalties and interest will be assessed. Expect the penalty to be at least 25% of the credit claimed, perhaps as high as 100%. Depends on which section of the Internal Revenue Code they decide to use (negligence or fraud). Also, they may bar you from claiming the education credit anytime in the next three years.

Your choice!