taxes when moving out of USA permanently as H1B visa holder

[kuldeep_23123]

I will move out of USA in July, 2023, with no plans to return back for a couple of years at least. I have been continuously residing in USA on H1B work visa for almost 10 years and i do pass the substantial presence test and therefore I am considered a resident alien for tax purpose. Here are some questions i have, if some experts would like to advise on:
1) Do i need to do tax filing as dual status alien or resident alien for year 2023 (when i file my taxes in 2024)? Is there a choice?
2) If i can file as resident alien, would i report all earnings until Dec 2023 or until July 2023? And would i be able to get standard deduction, child credits etc for year 2023?
3) For FBAR and form 8938, would i include information as of July 2023 or Dec 2023 (as there might be additional financial accounts in new country after i move there)?
4) Do i need to file residency termination statement with IRS? is that required or optional? when should i file it, at the time of leaving the country or when i file taxes in 2024?
Thanks for the help.

[pk]

@kuldeep_23123  First Namaste.  The answers to your questions are  shown in  Italic

1) Do i need to do tax filing as dual status alien or resident alien for year 2023 (when i file my taxes in 2024)? Is there a choice?   

Generally this will be best , if I am assume that you will working  / earning  for the period  July 2023  till   end of year and you   do not see  an advantage  in having both US and  your " country of new  employment / earning ( India ? )
2) If i can file as resident alien, would i report all earnings until Dec 2023 or until July 2023? And would i be able to get standard deduction, child credits etc for year 2023?

    If there is a tax benefit to you , you can choose  to file as Resident Alien  -- essentially ignoring  the dual status --- because you have been a "Resident for Tax Purposes " for a long time,  special rules are applicable to you .  But this does mean that  you are taxed on your world income for the entire year of 2023 , irrespective  of the source of income.   Thus for the period  July through the end of the year  "foreign" income would be taxed by the USA.  Also note here that  while foreign tax credit  will still work for you , foreign earned income  exclusion may NOT ( because you will not meet the physical presence test ) and foreign tax credit  allowed for the  tax year is always less than  actual foreign taxes paid . 
3) For FBAR and form 8938, would i include information as of July 2023 or Dec 2023 (as there might be additional financial accounts in new country after i move there)?

Generally these are  for the whole calendar year / tax year and since there is no tax implication , you should  file for the whole  year, even with the new  "foreign " accounts.
4) Do i need to file residency termination statement with IRS? is that required or optional? when should i file it, at the time of leaving the country or when i file taxes in 2024?

Once your Visa expires  or you leave the country for good, you need to file  INS paperwork  ( but  if you prefer to file as a resident, then you perhaps want to delay that filing till 12/31/2023 )

Hope this helps  .  Is there more I can do for you 

Namaste ji

pk

[kuldeep_23123]

Thank you for your response. I have some followup questions:

For #1, so you are saying that it's a choice for me to make whether I want to file as dual status alien or resident alien for year 2023. if that's correct then I would prefer to file as resident alien for year 2023, since I would be able to get the standard deduction and child credit etc that way for the full year. Do you know how those standard deduction and child credit would work in case of dual resident status? I would still think I will come out ahead overall filing as resident alien.

For#4, on IRS website under "Residency Ending Date Under the Substantial Presence Test" it is mentioned that:

"However, your residency ending date is the last day during the calendar year that you are physically present in the United States if, for the remainder of the calendar year:

• your tax home is in a foreign country (cf. Rev. Rul. 93-86); and
• you maintain a closer connection to that foreign country than to the United States (cf. Treas. Reg. § 301.7701(b)-2(d)).

I am having a hard time understanding above part. Are they saying the last day is 31st December of the calendar year in which you left or the exact date when you left the country. if it's the later then can I still file as a resident for the whole year?

[pk]

@kuldeep_23123  generally and as a Non-immigrant work visa holder, when you leave the country and have no intention of returning ( or your visa has expired ), then yes , you do not have a choice about filing as dual status i.e one 1040 covering the period  while present in the USA and  a 1040-NR covering any US sourced earnings  during the rest of the year.

However, if you as a Resident for tax purposes  meet the longterm resident   ( LTR ) requirement then there are many other  items come into play  including mark-to-market on real & investment assets.  Please see this  Instructions for Form 8854 (2022) | Internal Revenue Service (irs.gov)  

 What I was alluding to is , if you have a choice   ( i.e. your visa does not expire and you are leaving  of  your own volition ) and without  any clear decision as to your longer term decision, then you could argue that you were and continued to be resident of the USA till the end of the year .  This will of course bring your world income  under US tax purview , even that earned in foreign/home  country ( India ? ). This will allow you to  get around the itemized deduction trap.  I caution you though, that this whole argument depends  very much on  exact facts and circumstances  ( Can you establish a closer connection to the US ?  ).

Hope this helps you in coming to a decision on how to go forward

Namaste ji

pk