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Relocation to the US: Dual status, 1040NR or 1040?

Hello,

I came to California from Germany in October 2012 and work here on a H1B visa (I got an SSN) with my wife (H4 Visa, no work). I got a W-2 form from my employer.

I am trying to figure out how to file taxes for 2012.

It seems I have the following two options:

-file a 1040NR stating the U.S. income only. I am required to file "Married filing separately" in this case which gives me less deductions. Probably I need to pay taxes that my employer withheld as I told I was married?

-file a 1040 declaring my world wide income for 2012. Taxes paid on my income in Germany would be subtracted to avoid double taxation? I would need to pay taxes on interest earned which is tax-free below a certain amount in Germany? How to convert Euros in Dollars? I would be able to file jointly in this case, but my wife would need to obtain an ITIN number?

Furthermore I need to disclose any bank accounts I have in Germany and their maximum balance in 2012 to at least two different authorities on different forms?

Is this more or less correct or did I get it wrong?

Also in the US I need to additionally declare for the California state tax to another authority. Are these different forms and if yes, do the same rules apply for a person moving to the US within the year?

How can I find out which of the two options is best for my case? Most tax programs like TurboTax do not support 1040NR therefore I cannot compare.

Any help or hints are very much appreciated.

Reply to
Sven Kraemer
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I usually recommend that visitors to the US use a tax pro to compute their first year taxes. That said... here are some facts for you.

  1. You are not a dual status alien in 2012 because you were an NRA at the beginning of the year and you are an NRA at the end of the year (you fail the substantial presence test.) You are an NRA in 2012.
  2. However, if you know you will be a resident alien in 2013 (you will pass the substantial presence test) you can make an election (this is a formal statement attached to your tax return) to be treated as a resident alien for the period you were in the US in 2012. This effectively makes you a dual status alien for 2012.
  3. However, if you make the election, you can not file your 1040 until you actually pass the substantial presence test in 2013. Based upon when you say you came to the US, you would not actually pass the test until some time after the filing deadline of 4/15/2013. You would have to request an extension to file and pay any tax due prior to the filing deadline to avoid penalties.
  4. As you are not married to a US citizen or resident alien your spouse would have to make the same election to be treated as a resident alien for the period of presence in 2012 assuming she also would pass the substantial presence test in 2013. Then you would both be resident aliens at the end of 2012 and you both could make the election to be treated as resident aliens for the entire year of 2012. This is another formal statement for attachment to the 1040) to be treated as resident aliens for the whole year of 2012.
4a: There is an exception to the nonresident spouse making the same election as you based on 2013 presence. There is a rule that allows you to make an election to treat her as a resident alien for the year if you are a resident alien on 12/31/12 and she is an NRA. If you choose this path, you must file a joint return for 2012.
  1. As resident aliens for all of 2012 you would have to report your worldwide income on your 1040. You can complete Form 1116 to calculate a foreign tax credit based on income taxes paid to Germany on the same income being taxed by the US. The credit can not be greater than the amount of tax that the US wants.
  2. And... yes if you want to file a joint return on a 1040, your spouse would require an ITIN.
Reply to
Alan

I left out the CA part of the answer. It has been a while since I left CA.... but as I remember it... assuming you have not changed your domicile (i.e., Germany is still your one true home) you would be a CA resident (part-year resident for 2012) if your purpose of being in CA was not temporary or transitory. The rule of thumb I and others used was if your intent was to be in CA working for less than a year, you were in the state for a temporary period and you were a nonresident of CA. Otherwise, you would be a resident. CA has a presumption rule. Anyone in the state for more than 9 months is presumed to be a resident. The burden would fall on you to show that a stay beyond 9 months was still temporary or transitory. As a resident, CA taxes you on your worldwide income for the period of residency. As a nonresident, CA taxes you only on your CA source income.

Reply to
Alan

It might be good to file 1040-NR and 540-NR in the first year because then you don't have to pay CA tax on your German income, or worry about reporting your German income on 1040 then using the foreign earned income exclusion (which I think applies to your case) to not pay tax on it or the foreign tax credit. Since most software does not handdle

1040-NR, you might have to do it by hand.

Also, if you have lots of money and expect lots of capital gains, continue to file 1040-NR so that you don't have to pay tax on your capital gains. I don't know how that squares with the residency rules which presume you to be a resident if you stay in the state/county for more than 183 days.

When you use 1040-NR you don't get to use the standard deduction (unless a treaty applies, which I think is not the case here).

To convert, I use the average exchange rate (cash rate, not interbank rate).

Yep, there are forms TDF as well as 8339 or something like that.

Reply to
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