Residency, U.S. Source Income, Deductions, and Filing Status in Dual-Status Returns

Description

Dual status taxpayers are those considered to be residents and nonresidents within the same tax year. These taxpayers must submit two income tax filings for the same tax year, including Form 1040 (or statement) for the resident portion and Form 1040NR (or statement) for the nonresident part of said year. The taxpayer's status at year-end dictates the form filed, 1040 or 1040NR. Practitioners often opt to include a statement, as opposed to the alternate form, for the period covered by the first of the year.

Since the U.S. taxes global income, income from all countries must be included on the resident return. At the same time, only U.S. sourced income and income effectively connected with a U.S. trade or business, would be reported on the nonresident return.

Additionally, practitioners must be able to determine whether a taxpayer is a resident or nonresident via his green card status or using the substantial presence test. Other unique filing considerations for these returns include disallowed deductions and the requirement to file separately for nonresidents. Applicable taxpayers may be able to benefit from the foreign earned income exclusion for the portion of the year they are a resident.

Listen as our panel of experts explains filing dual-status returns, including determining residency status, filing status, deductions, and credits, as well as planning opportunities and best practices for filing these complicated returns.