On further analysis, I have discovered additional resources and information to share with you.
I read the response by @pk and he/she mentioned residency periods on how these can be applied. I have always operated on the premise that if you become a resident alien during a tax year, you were an resident alien for the calendar tax year according to this IRS publication. If this is the case, you would need to report your worldwide income for the calendar year. After additional research, I discovered options you can make. Here are those options.
According to IRS Publication 519, you have the ability to make an election either as a resident alien or as a dual citizen for this first year. This means you can declare your self as a non-resident for the the period of time until a date that you establish yourself as a resident alien.
According to this IRS source document you can be both a nonresident and a resident for U.S. tax purposes during the same tax year. This usually occurs in the year you arrive or depart from the United States. If so, you need to file a dual-status income tax return. Please review the link provided to file as a dual-status citizen because there are restrictions that apply. If this is the case, you may file as a non-resident from the time you entered the US until early in August when you became a resident alien.
If you choose this dual-status election, you will not need to declare your Indian income on your non-resident 1040NR return. There are drawbacks to this choice however.
- You will need to file both a 1040NR and a 1040. Turbo Tax does not handle a 1040NR filing but we have an affiliate called sprint tax. Select the link to begin the filing process.
- When you file the 1040, you won't be able to electronically file because f you are a dual-status taxpayer who becomes a resident during the year, you will need to attach a statement showing the income for the part of the year you are a non-resident. You also will need to write "Dual-Status Return" across the top of the return. Turbo Tax does not have the ability to include attachments electronically thus the return must be paper filed. Note, the statement could include a copy of your 1040 NR as the attachment thus you would need to file this return first. Please reread this link for further details regarding attachments.
- One big caveat is that you will not be able to claim a standard deduction on your US 1040 resident return. This means you must itemize and your itemize deductions may not amount to much resulting in a much higher tax liability for the year.
- You cannot file a joint return. However, a dual-status alien who is married to a U.S. citizen or a resident alien may elect to file a joint return with his or her spouse. Refer to Nonresident Spouse Treated as a Resident for more information. If your wife is considered a resident alien at the end of the year, you may file jointly.
As far as your US income reported on your Indian return, @pk is correct in mentioning that this is a complicated process and the treaty declaration is more confusing than helpful.
I realize I have given you a wealth of material to digest. It does boil down to a simple choice and that is to declare yourself as a resident alien for the entire tax year or a dual citizen subject to the drawbacks already listed.
My advice is to file as resident alien for the entire year just so you can claim a standard deduction for yourself and file jointly with your wife. Additionally, you have the ability to file electronically with no restrictions. Also the small amount of income earned in India may not make much of a difference because much, if not, all might be offset by a standard deduction. Also, you can possibly claim a foreign tax credit using the procedures that is listed in a previous post.
Between pk and myself, we are here to help you so reach back to us anytime.
@pk @p_r_s
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