Specifics of filing dual-status return for family

Question

My wife, our daughter, and I are in California since September 2013. Only I had income in US. I am planning to file extension form 4868 to be able to make first year choice and be treated as dual-status alien for 2013. Regarding that I have several questions:

1. My wife and I can only file separate returns because that is a restriction on dual-status aliens. We need to equally split all of our community income, deductions, etc because we live in CA. Should my wife file copy of my W2 with her return? Is a photo-copy enough, or does it have to be the original W2?

2. Both my wife and I need to file extension form 4868. I will estimate taxes as if I was a non-resident for 2013, and my wife will put 0 (because she did not work and had no separate income). Is that right?

3. Can we treat our daughter as a dependent? One requirement for our daughter to be considered qualified child is being a resident or a US citizen (1040 Instructions, page 16):

   Is Your Qualifying Child Your Dependent?

   1. Was the child a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico? ...
      • Yes. Continue
      • No. STOP You cannot claim this child as a dependent.

   As I understand, we can make a first year choice for her, which will make her dual-status as well. Then, would she meet residency requirement for purposes of becoming a dependent? If yes:

   • Do we need to file 4868 for her as well?
   • Do we need to file 1040 + 1040NR as dual-status statement for her when she meets her substantial presense test in 2014?

4. My wife is going to file form W7 to get ITIN with her return. Do I need to include a copy of her W7 with my return if we file separately (it will be two separate envelopes, I suspect)? Does a copy of W7 need to be included with Californian tax return (540NR)?

Answer 1

First, it is not strictly necessary to file your W-2s at all. Millions of people who e-file are not including any documents at all. The IRS already receives millions of information reports keyed to SSNs and EINs, including W2s and 1099s. So you can safely file photocopies without fear of incident.

Second, your spouse should report the total liability she expects to report for 2013. So she should put her estimated tax on line 4, same as you. If she legitimately expects zero, even with the taxes on your community income, then that's fine. See the instructions for line 4 of 4868. http://www.irs.gov/pub/irs-pdf/f4868.pdf (p 3)

Third, my reading of your situation is that your daughter is not a US citizen or national and was resident outside the US prior to September 2013. If that is correct, then I believe that will block claiming her as a dependent (either as a qualifying child or as a qualifying relative).

Fourth, as relates to ITINs I confess to uncertainty. My chosen path would probably be to just write "APPLIED" or similar language on your return under the space for spouse SSN. I would be careful about sending a second ITIN application form, which may result in her being issued two ITINs. If you decide to do it anyway, I would be careful to mark it as a duplicate, maybe by invalidating or blanking out the signature block, and even an addendum page stating that it is a duplicate. But as I said, I think a short note in the Spouse SSN field is sufficient.

If you have further questions, it may be helpful for you to consult Pub 519, US Tax Guide for Aliens. http://www.irs.gov/pub/irs-pdf/p519.pdf

Answer 2

I generally agree with NL7's answer (and +1ed it), but it is somewhat vague and I want to clarify some points more specifically to what you asked.

My wife and I can only file separate returns because that is a restriction on dual-status aliens. We need to equally split all of our community income, deductions, etc because we live in CA. Should my wife file copy of my W2 with her return? Is a photo-copy enough, or does it have to be the original W2?

Photocopy is enough. You would also attach form 8958 to both returns as well, since on your return W2 will not match the income reported.

Both my wife and I need to file extension form 4868. I will estimate taxes as if I was a non-resident for 2013, and my wife will put 0 (because she did not work and had no separate income). Is that right?

Since she's going to report income on the tax return, I'd suggest writing down the estimate income she's going to report. However, if no taxes are due and your withholding covers the liabilities of both of you - it doesn't matter all that much what you put there. If you have underpayment - you better put an estimate and pay some with the extension.

In any case it is advised to pay at least $1 with the extension since the cashed check is the only receipt you have that the IRS have accepted it on time.

Can we treat our daughter as a dependent?

Yes. She's your dependent, and she doesn't need to file a tax return of her own just for the residency selection (since she cannot make her own decisions anyway, you writing her on your return is enough). If she doesn't need to file a tax return - she doesn't need to file extension.

My wife is going to file form W7 to get ITIN with her return. Do I need to include a copy of her W7 with my return if we file separately (it will be two separate envelopes, I suspect)?

W7 goes only with the return on which the individual for which you're applying for ITIN is written down.

You will also need to apply for ITIN for your daughter (unless she has a SSN), in which case you attach W7 to the return on which the exemption for her is claimed (only one of you can claim the exemption). On the other return you write "APPLIED" in the ITIN/SSN field (for your spouse).

Does a copy of W7 need to be included with Californian tax return (540NR)?

CA doesn't issue ITIN's. You'll submit without ITIN (write APPLIED) and then send an amendment when you get the ITIN to let them know. You may want to attach a statement to the CA return to the matter, and you can attach the copy of the W7 to that statement. I'm not sure if it is necessary, but I found people suggesting it as a way to go.

Note that in California you're probably considered resident (part year resident first year), regardless of your immigration status.

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As I said before, I suggest verifying everything with a tax preparer (CRTP/EA/CPA licensed in California) who's experienced with non-residents (in the Bay Area and SoCal almost everyone is). You can prepare the package yourself and have someone go over it with you before you submit if you're worried about the costs. You might want to double check the W7 instructions, as they have recently changed.

Answer 3

You are correct that as dual-status, you cannot file jointly. However, you and your wife can also file jointly and be treated as resident aliens the whole year if you want. (This is a little off-topic, but it is the usual thing to do in your situation.)

Once you are dual-status by using the first-year choice, then you can either Choose Resident Alien Status (if both of you became dual-status), or use Nonresident Spouse Treated As Resident (if only one of you became dual-status). Either of these will make both of you residents for the entire year, and you will be required to file jointly. As residents, you will have standard deduction and many more benefits. As residents though, you will need to be taxed on your worldwide income the whole year.