If you live outside the US, then you probably need to deal with foreign tax credits, foreign income exclusions, FBAR forms (you probably have bank account balances enough for the 10K threshold) , various monsters the Congress enacted against you like form 8939 (if you have enough banking and investment accounts), form 3520 (if you have a IRA-like local pension), form 5471 (if you have a stake in a foreign business), form 8833 (if you have treaty claims) etc ect - that's just what I had the pleasure of coming across, there's more.
TurboTax/H&R Block At Home/etc/etc are not for you. These programs are developed for a "mainstream" American citizen and resident who has nothing, or practically nothing, abroad. They may support the FBAR/FATCA forms (IIRC H&R Block has a problem with Fatca, didn't check if they fixed it for 2013. Heard reports that TurboTax support is not perfect as well), but nothing more than that.
If you know the stuff well enough to fill the forms manually - go for it (I'm not sure they even provide all these forms in the software though).
It is my opinion, though, that you should get a US-licensed
CPA/EA who is practicing in the country of your residence and
can do it for you.
Now, specifically to your questions:
Turbo tax doesn't seem to like the fact that my wife is a foreigner
and doesn't have a social security number. It keeps bugging me to
input a valid Ssn for her. I input all zeros for now. Not sure what to
No, you cannot do that. You need to think whether you even want to include your wife in the return. Does she have income? Do you want to pay US taxes on her income? If she's not a US citizen/green card holder, why would you want that? Consider it again. If you decide to include here after all - you have to get an ITIN for her (instead of SSN). If you hire a professional to do your taxes, that professional will also guide you through the ITIN process.
Turbo tax forces me to fill out a 29something form that establishes
bonafide residency. Is this really necessary? Again in here it bugs me
about wife's Ssn
Form 2555 probably. Yes, it is, and yes, you have to have a ITIN for your wife if she's included.
My previous state is California, and for my present state I input
Foreign. When I get to the state tax portion turbo doesn't seem to
realize that I have input foreign and it wants me to choose a valid
state. However I think my first question is do i have to file a
California tax now that I am not it's resident anymore? I do not have
any assets in California. No house, no phone bill etc
If you're not a resident in California, then why would you file? But you might be a partial resident, if you lived in CA part of the year. If so, you need to file 540NR for the part of the year you were a resident.
If you have a better way to file tax based on this situation could you
please share with me?
As I said - hire a professional, preferably one that practices in your country of residence and knows the provisions of that country's tax treaty with the US. You can also hire a professional in the US, but get a good one, that specializes on expats.