khem180

Hi,
My husband and I have been advised to file as Dual-Status aliens for our 2009 tax return, which means we will have to file an extension and wait until after June 30th to send in our return. I would just like to know what the advantages of doing this are? I'm confused enough from researching the whole resident/non-resident issue, and although we've come to the conclusion that we should file as dual-status, I'm still not sure whether it's worth it or not, compared to filing as non-residents. We did see a consultant and they seemed to think we would get more of a rebate by doing it this way, but I can't find any other evidence that this may be true. Just to clarify - my husband is on an H1B visa, and I am on H4 (so no SSN, and I will have to apply for ITIN). We arrived in the US on September 21st 2009.
Would it be a good idea to file an extension anyway, so that we've got more time to work it out?
Any advice would be greatly appreciated - we have never filed a tax return before and are pretty clueless about the whole situation!
Thanks

dbj1000

Sorry to answer a question with a question, but why will filing an extension affect or change your status last year in any way? The tax year runs Jan 1st to Dec 31st, not until you file your tax return.

Given your arrival date, and my understanding of the IRS documents for Dual Status choice, you can choose to be Dual Status because you were resident in the US for at least 31 days in 2009, and at least 75% of those 31 days were between your arrival date and Dec 31st 2009.

http://www.irs.gov/publications/p519...blink100038966

So, again, why does this mean you have to file for an extension until after June 30th?

khem180

Good point - I'm just going on what we were told yesterday by a tax consultant. They said that we wouldn't pass the substantial presence test until June, which at the time seemed to make sense. Maybe I got it wrong and that requesting an extension would mean that we could then file as residents. I suppose I now need to understand the advantages of filing as dual status compared to filing as residents (is that mainly concerned with being taxed on worldwide income?). Still pretty confused about the whole thing, so any clarification would be great. Thanks.

dbj1000

If you file as non-resident, you can't take most of the standard tax deductions (and I think you can't itemize your deductions either). Depending on your tax burden and your husband's salary, this could mean a difference of a few hundred or many thousands of dollars in your tax refund.

It sounds to me like your tax "consultant" is about as good as H&R Block - i.e. utterly useless if your tax is anything other than completely straightforward.

Ask your "consultant" for a full explanation of why you should file for an extension. My guess is that it's because he or she doesn't understand your taxes, and can't get them worked out in time for the April 15th deadline.

If the consultant can't provide you with a real reason, in words that you can easily understand, then you need to fire her and look for someone who actually knows about expatriate first year tax issues.

While you're at it, ask your consultant to discuss tax treaties, foreign earned income exclusion and foreign mortgage interest deductions. Post his or her replies here and I'll tell you if they're bullshitting.

md95065

As djb1000 said, you are filing a tax return for calendar year 2009. Your status for 2009 is what it is and so are your filing options. By all means file for an extension if you need more time to file and prepare your return, but it won't make any difference to the return itself.

Also note that the extension is only an extension of time for filing the return, not an extension of time for paying any taxes which may still be due so you need to know at least approximately what your US tax liability for 2009 is going to be before April 16 even if you don't actually file until later.

khem180

Thanks for the responses, ok - you got it sussed. So for 'tax consultant', read 'woman at H&R Block' (supposedly a 'specialist' in these matters, but still had to look stuff up in the booklet).... So you're saying that even if we waited until June, we couldn't file as residents for 2009 anyway, so we might as well file right now under 'dual-status'? Is that right? All I really want to know is that we'd be better off filing as dual-status, rather than non-resident (basically, two sets of friends in exactly the same position of us have filed as non-residents, so were they wrong to do this?)? Sorry to sound a bit thick about this, but it's been going around my head all day and I'd just like some kind of resolution to it as soon as possible. Cheers.

khem180

I've just found this - I know it's from a few years ago, but surely the situation is the same? This quite clearly recommends waiting it out until June, when the requirements for the substantial presence test would be met and they could file as residents (despite only being resident for part of the tax year in question). This is the same for us, isn't it? The rules state that the 183 day minimum includes the current year, as well as the previous 3 years.

http://www.askmehelpdesk.com/taxes/r...tus-19762.html

From IRS:
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
* All the days you were present in the current year, and
* 1/3 of the days you were present in the first year before the current year, and
* 1/6 of the days you were present in the second year before the current year.

dbj1000

It is my interpretation that "the current year" is the year for which you are filing your taxes (i.e. 2009). I may be wrong.

It is my opinion that H&R Block are so useless, recklessly under-trained and utterly lacking in knowledge of anything but the most trivial of tax situations. I'm pretty sure I'm not wrong on this one.

Get yourself a real tax consultant. You will not only lose money at H&R Block, but you risk them filing a totally incorrect tax return for you, which may have serious repercussions in later years. I have been through the "first year in the US filing with H&R Block (Premium, in my case)" and I can tell you that it was a complex, frustrating and ultimately disastrous fiasco.

If you MUST stick with those charlatans, ask to have your tax prepared by a senior H&R Block employee with proven expat tax experience, and then be prepared to use their "right first time or it's free" clause to get out of paying the $$$ that they'll charge.

dbj1000

Reading the link you posted, I've been convinced that they're right and I'm wrong. Apparently you can "wait out" the substantial presence test.

That give you between now and June 30th to find a real tax consultant!

khem180

Thanks - that's sound advice! I think it's becoming a bit clearer now. It's a bit of a joke that I've had to find this out for myself though, isn't it? I'm just glad that we weren't charged for the hour-long (!) meeting we had yesterday. I'll do what you suggested and find someone who (hopefully) knows what they're talking about. At least it won't hurt to file an extension anyway, will it? We don't owe any money right now and are hoping for a fairly decent sized rebate - that's why we're concerned about finding the best possible way of approaching this.
Thanks again.

rew1000

We were in the same situation a few years ago. Resident status looked better because the non-resident tax rate is a flat 30% and you can't claim deductions.

You do need to file the extension, because you can't make the "first year choice" for 2009 until you pass the substantial presence test for 2010. A couple of things to watch out for when filing as "dual status": you can't file as married filing jointly (which means that probably only the H-1B holder needs to file for 2009), and you can't take the standard deduction (but you can itemize things like state income tax and relocation expenses).

khem180

Thanks - that's just confirmed it for me even more. We'll definitely wait til after June and file as residents then. I know that it means we're liable to pay tax on worldwide income, but I don't think it will affect us too much, compared to the difference that filing jointly will make, as I'm on H4. Many thanks for the response.

dbj1000

Unless your foreign earned income was over about $90,000 (I haven't looked up the exact figure for 2009) you can claim Foreign Earned Income Exclusion, and you won't be double taxed on it.

khem180

That was going to be my next question! Excellent stuff - no, it certainly wasn't more than that... We did fill in our NRL1 in time too, so there shouldn't be any tax to pay on the rent we receive for our UK property. Is that right?
So, on the extension application form, do we just put the figures from my husband's W2 & not include anything else from before we moved to the States in September?

dbj1000

I'm afraid I have no experience of filing an extension or of UK rental income.

Many people here DO have rental income, however, so hopefully someone will give you some insight (you really should do an Advanced Search of the site for threads on this first).

As for filing the extension... no idea I'm afraid. Personally if I was unable to find a competent tax person before filing the extension paperwork, I'd just list my US income.