Greencard holder - file 1040NR or 1040

[ptax255]

Hi, client is a greencard holder and lived outside of the US the whole year in 2023. If I read the guidance correctly, he can file a 1040 with worldwide income and claim the foreign tax credit OR he can also file 1040NR with just US income.

His income as follows:

Foreign salary - $400K

US W2 - $15K

US K-1 from S corp - $5K

Some minor interest/dividend from US banks

He paid tax in the foreign country on his worldwide income

If he we were to file 1040NR - would his tax rate only be on $20K income so about 10%? Can a foreign tax credit be claimed on a NR return? Or is there any additional NR tax I should consider? I'm trying to decide what's the best way to file.

I don't do NR returns so any starting guidance on how to approach this would be greatly appreciated.

[sjrcpa]

What leads you to believe client can file 1040NR?

My understanding is that once you become a Green Card holder (Resident Alien) you file 1040, no matter where you live.

[ptax255]

Based on a tax treaty with Germany, Article 4.

In some cases, you are allowed to make elections which override the green card test and the substantial presence test, as follows:

• First-Year Choice To Be Treated as a Resident   
• Nonresident Spouse Treated as a Resident  
• Closer Connection To a Foreign Country   
• Tax Treaties

https://www.irs.gov/individuals/international-taxpayers/determining-an-individuals-tax-residency-sta...

[TaxMonkey]

I'm not familiar with the applicable tax treaty provisions at play here, but assuming he can choose either, or then I would approach it like a MFJ vs MFS situation.  Simply determine the tax liability either way and make whatever choice is best.