Looks like I will be doing Snork Maiden's taxes. The software she used last year won't let her file as a non-resident alien this year, even though that is clearly what she is. All foreign students count as non-resident aliens irrespective of how long they've been in the US. On the other hand I don't yet have a green card but count as a resident for tax purposes.
Back when I was a grad student I used to file a 1040-EZ even though I was a non-resident alien. For most people you pay less taxes that way. Yes, it is cheating on taxes. So we are going to file properly. The only software I use for taxes is Excel and the IRS's forms and instructions. My taxes take several hours to figure out when I get down to it. I reckon Snork Maiden's federal return will take less than half an hour. The Vermont return will be a novelty for me. I've completed Massachusetts and New York tax forms for myself before and also a California return (not my own).
Trading went pretty well today. Of my two new indicators for overbought conditions, one said to go short today and one formally said not to, but was pretty close to short. So I was short and the market went down. My overnight trade (short 2 NQ) was profitable and then I initiated another trade (short 3 NQ) in the afternoon which I held for about breakeven at the close. I also have 4 QQQQ puts and short 1200 QQQQ shares as my core trading position. So now I am effectively short the equivalent of one big NDX contract or 4000 QQQQ shares. At midday I was only short the equivalent of 1600 QQQQ shares. I'm down this month in trading but despite the big blow out my net worth performance has not been affected at all. I only have about 6-7% of my net worth allocated to trading. Good investment performance and the rise in the Australian Dollar have easily offset losing 15% of my trading capital in one day. That is the benefit of true diversification.
14 comments:
Moom, are you talking about "Cintax" for the Snork Maiden's taxes...and that's not allowing her to file as a non-resident?...International students use Cintax in our school and apparently it puts an upper limit of 5 years of residence in the US to be considered as *non-resident*. After that most of them file their own taxes.
Since you are not doing your taxes jointly, I am guessing you are looking at more standardized deductions due to non-resident alien status.
You sound like a day-trader to me. :) I think I will pick up some tricks from you in the time to come.
Moon, you're probably confused with different definitions of "resident" used by IRS and INS (USCIS recently). Goldguru was right. IRS is only concerned with the number of years you've been to US. Thus your Snork Maiden should file as a Resident Alien (1040 or 1040-EZ), instead of a non-Resident Alien. Besides, a resident alien gets higher standard deduction, which is highly desirable as well, isn't it? Enjoy more deductions!
Yanmick - you are wrong and Golbguru is right. I do understand these issues as I've been an F1 a J1 and and H1B. It's very straightforward when you read the relevant IRS publication. The software is wrong. Yes unfortunately non-resident aliens have to pay more taxes unless they have big investments.
Golbguru - yes it was Cintax. That must be the issue. She arrived in the US in 2001 I think. There are fewer of those standardized deductions/exemptions for non-residents. Of course if you are a resident you have to pay the social security tax and be taxed on worldwide income.
I'm not really a "daytrader". I would call my style short-term swingtrading though sometimes I do daytrades. I'm also a long-term investor (90% + of net assets).
Humm, I didn't expect this to be a tricky question. I am Jacqui's husband who had the "privilege" to filed as F1 for 9 years, a true latestarter. Let's take a closer look:
I might have overstated that IRS is ONLY concerned with the number of years a tax payer have spent in US, as the green card test is one of the test to qualify a non-resident alien to a resident alien. However, you can get the spirit of the tax law from the "straightforward" IRS publication :
"The residency rules for tax purposes are found in I.R.C. § 7701(b). Although the tax residency rules are based on the immigration laws concerning immigrants and nonimmigrants, the rules define residency for tax purposes in a way that is very different from the immigration laws. Under the residency rules of the Code, any alien who is not a RESIDENT ALIEN is a NONRESIDENT ALIEN. An alien will become a RESIDENT ALIEN in one of three ways: (1) by being admitted to the United States as, or changing status to, a Lawful Permanent Resident under the immigration laws (the Green Card test); (2) by passing the Substantial Presence Test (which is a numerical formula which measures days of presence in the United States); or (3) by making what is called the "First Year Election" (a numerical formula under which an alien may pass the Substantial Presence Test one year earlier than under the normal rules). Under these rules, even an undocumented (illegal) alien under the immigration laws who passes the Substantial Presence Test will be treated for tax purposes as a RESIDENT ALIEN."
So the Substantial Presence Test is the relevant part. As Jacqui told me, your lovely partner has been in the US for a while (longer than 5 years), and if CONSECUTIVELY, there is no way she has not passed the test to qualify for a RESIDENT ALIEN.
I know it has nothing to do with the immigration rules. But if you read the "Tax Guide for Aliens" it says that you don't count any day you are an F1 student towards presence in the US for the substantial presence test.
Yannick:
hmmm you might actually be right. It's pretty complicated though... seems that after 5 years you have to prove to the IRS that you don't intend to immigrate... otherwise you revert to resident status. So up till 5 years you must file as NR and after 5 you file as resident unless you make the claim to be NR.
Still Cintax only allows NRs to file so looks like I will still be doing her taxes.
Agree, it's not that "straightforward". After saying students (F1) were one of the "exempt" cases, the "exempt" status were automatically taken away after 5 years. I am pretty sure about the conclusion since this question has been consulted with the tax officials at UC Berkeley.
"You will not be an exempt individual as a student if you have been exempt as a teacher, trainee, or student for any part of more than 5 calendar years unless you establish that you do not intend to reside permanently in the United States and you have substantially complied with the requirements of your visa."
Now you can use any normal tax software for her tax return, right?!
I could use tax software but I'll just use Excel and paper forms the way I'm used to :)
So you are at Berkeley?
Moom and yannick, thanks for this discussion. Incidently, I am in the same boat as Snork Maiden...and haven't yet figured out what to do with my taxes. This discussion sort of refreshed some terms for me without having to read the tax manual yet.
Moom and Golbguru,
If you guys are interested in getting more tax exculsion for yourself or your S.O., you may be interested in this our new post .
MOOM,
Forgot to answer your question. We were not in Berkeley. We do have many friends there though.
moom:
yes, if Snork Maiden has a 1042S, then her W2 should only show a her Total_Actual_Wage - $5000. In this case, you will still attach Form 8833, but on the line 7 of 1040, just use the number on W2, effectively ignore the $5000 (of course, IRS can find it using the attached 1042S and 8833).
If she did not have the 1042S and the W2 showed the Total_Actual_Wage, then she should still attach Form 8833 and on line 21 (other income...), put "See attached Form 8833" and "(5000)" as -$5000 to arrive at the correct amount on line 22.
As you told me, she would not qualify for Resident Alient until 2008, thus, you only need 1040NR-EZ for her this year?
You must have also reminded her of Roth IRA contribution, right?
Great - I think I have it figured out now. No she hasn't done a Roth IRA.
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